COVID 19 is an unprecedented public health crisis in modern times that is having a devasting personal toll on people around the globe and a negative impact on the global economy. Public officials are rightly addressing this crisis through aggressive efforts to limit public interaction by closing schools, restaurants, bars, events, and other businesses where social interaction is at its peak. However, these closures while good for public health are likely to create a substantially negative economic impact that will lead to a rise in unemployment and loss of revenue for companies and the local, state and federal government.
While a long-term economic downturn can be avoided with quick action by policymakers, the near-term negative economic impact of COVID 19 is frightening:
⦁ Manufacturing firms like Honda, Ford, Fiat Chrysler and other global manufacturing firms have temporarily shut down U.S. facilities;
⦁ The National Restaurant Association estimates that restaurants and the foodservice industry could sustain $225 billion in losses and eliminate 5-7 million jobs over the next three months;
⦁ The International Chamber of Shipping said the pandemic has cost the worldwide industry around $350 million per week, and, in January, 2020, North American transport volume was down 9.4% impacting the over 225,000 Americans working in the freight transportation industry according to recent USA Today reports;
⦁ Whether it is the $1.8 B economic impact of the Broadway theater district in New York or Ohio’s creative industries which account for $41B in economic activity this industry is closed and will have millions of dollars in economic losses; and
⦁ Ohio unemployment jobless claims moved from under 5000 the week of March 9 to nearly 140,000 to finish the week of March 16, 2020 reaching nearly a record high from 1981 when steel mills and factories across the state were closing during a major national recession.
These short-term economic impacts could trigger a longer-term recession ending the longest economic recovery in the history of the United States. The federal government is currently debating how to address the COVID 19 economic impact but so are the 50 states across the Union. The Montrose Group recommends critical public policy steps that need to be taken in the next several weeks by state governments across the United States if they wish to limit the negative economic and governmental fiscal impact of the current public health crisis. To simplify the process, the Montrose Group recommends the creation of state government COVID 19 stimulus package to address current public health and economic challenges but also to position their region to bounce back quickly once the public health challenge declines.
Personal Protective Equipment Purchases
The first job of government is to slow the spread of COVID 19. An important step in that process is to ensure that health care professionals, first responders, company and the public have access to personal protective equipment and other equipment needed to prevent the spread of this virus. The World Health Organization has been warning for weeks about the lack of available personal protective equipment, and the even greater challenge is that much of this product is manufactured in China where the COVID 19 virus started. State governments are working to fill this gap. The Washington state Department of Health on March 13, 2020, reported they filled more than 50 requests for personal protective equipment including: 72,930 surgical gowns, 6,350 protective face/eye shields, more than 145,000 N-95 respirators, 238,560 surgical/procedure masks, and more than 100,000 gloves. State government health departments should make grants available for the widespread purchase of this personal protect equipment that is needed by a range of professions and the general public.
Hospital Capital Equipment
Current estimates from the American Hospital Association indicate nearly 1,000,000 Americans will need serious hospital treatment tied to COVID 19. Nations like Italy are seeing their health care system overwhelmed to treat patients with this virus. The United States has the advantage not just in knowing how to prevent the spread of COVID 19 but in what will be needed to treat those infected with the virus. However, the American health care system which is close the best in the world is simply not designed to treat more than 135,000 patients that need a ventilator to support their respiratory system. Media reports indicate these ventilators which are a critical piece of medical equipment for the seriously ill COVID 19 patients cost between $25,000-$50,000 in normal times. These are not normal times. State governments should move to an emergency group purchase of critical medial equipment needed by their hospitals and other health care institutions to treat the COVID 19 patients.
Capital Construction Investments
The National Association of State Budget Officers determined that 32 states coordinate state government capital and infrastructure spending through a budget process separate from the operating budget. 18 states include capital budget spending in their operating budget. Whether capital and infrastructure spending are included in a separate budget bill, states should immediately enact passage of state capital budgets to spur construction spending and employ workers in 2020. The steep decline in economic activity created by government forcing companies to close, government construction permitting slowing to a halt, and development companies unable to meet with public and private sector partners to move forward with projects will result in a substantial slow down in the construction of buildings and infrastructure across the United States. State governments can address this challenge through the immediate passage of the state government capital and transportation budgets that will pour billions of dollars of revenues back into local economies.
Small Business Taxpayer Cash-Flow
Most small business owners operate companies that often require the owners to pay quarterly minimum tax payments four times a year to the local, state and federal government. The federal government, recognizing the current public health crisis’ impact on small business has decided to delay the collecting of estimated federal income tax payments due on April 15, 2020 for ninety days to increase the cash flow for these mostly small business owners hoping to have their company survive mandated government shutdowns. State governments should follow suit and enact a 90-day delay in collecting quarterly minimum income tax payments due on April 15, 2020 to ensure these small business owners have the resources they need to keep their company afloat.
Industry Regulatory Relief
State governments are a prime regulator of public and private sector organizations. The COVID 19 crisis illustrates not just the power of public health directors to exercise unprecedent political authority to close companies and schools, delay elections and restrict public movement but those actions create substantial changes in how the United States operates. Some changes are subtle and shift face to face meetings to conference calls or web meetings. Other changes are substantial such as transitioning our public and private K-12 school system to an on-line model overnight. State governments need to examine their laws to make sure these public and private sector organizations are permitted to operating under this new model. As an example, K-12 public schools need relief from state and federal mandates to coordinate accountability testing, ensure funding flows as normal even though their instruction model has been mandated to change, and gain federal government waivers for how instruction of students with special education and other needs is required driven by widespread, mandated school closures. Higher education has similar federal government relief they need. Industry may need environmental permitting relief if state government regulators are not able to meet permitting timelines.
Save Hospitality and Creative Industries
Few industries are negatively impacted more than the hospitality and creative industries by COVID 19. Governors across the nation have moved to close restaurants and bars, sporting, theater and entertainment venues and any place the public gathers. The closure of theaters and other entertainment venues has a major economic impact on these organizations and their workers. Many of these companies and jobs are locally owned and operated. Equally important, the hospitality and creative industry is a major driver of local and state tax revenue which is more and more dependent upon sales tax to operate. The state of Colorado has predicted a 30 percent decline in general revenues in 2020 as part of what’s dubbed a “simulated recession,” and 2021 projections show a $400 million decline in general fund revenue and a $52 million dip in Colorado’s cash fund revenue according to recent media reports. Cities, counties and state governments dependent upon sales tax need the hospitality and entertainment industry to survive the current public health crisis. State government should take the unusual move of providing direct grants to locally owned and operated hospitality, entertainment and arts organizations to ensure their economic survival over the next several months. States like Ohio have as much as $500 M in funding available through the Ohio Development Services Agency 166 Loan Reserve Fund that could be used to support with grants of up to $1M or no-interest loans up to $2.5 M local hospitality, entertainment and arts companies and organizations to ensure their economic survival and support the continued flow of local and state sales tax revenues that come from these institutions.
Support Retention of Existing Manufacturing and High-Wage Service Workers & Companies
Local and state governments are where most economic development happens. Through an array of public and private sector organizations, private sector regional economic development organizations, local governments and state governments conduct the day to day Business Retention & Expansion visits to work to retain their current employment base and work to attract new industry to their community. 80% of corporate site location projects come from a region’s existing employers. When Honda, Ford, GM, Fiat Chrysler and other global manufacturing powers shutdown production due to COVID 19, the economic ripple effect on manufacturing will be dramatic as these auto assembly plants support thousands of manufacturing jobs in their supply chain. Mix in the impact of automation and 2020 is going to be a tough year for manufacturing workers to remain in this high-wage job industry. The same challenge is created for many high-wage service jobs as the economy is likely to see a double-digit economic decline in the second half of 2020. Local and state governments need to understand this 2020 “new normal” of their employment base and aggressively update their economic development incentive programs to support the retention of existing companies that do not add employees or make capital investments. As an example, Ohio’s Job Retention Tax Credit should be revised to be used for the state’s manufacturing and non-retail service companies who agree to retain their current base of jobs but requirements for capital investment and a high threshold for the number of employees needs to be reduced and funding for this tax credit program needs to be increased to $500M from the state’s $2.8 B Rainy Day Fund.
Prepare Major Projects for Development
Finally, state government leaders focused on economic development cannot stop doing their “day job” of promoting high-wage job creation and capital investment. COVID 19 does not change the fact that complicated sites need government and economic development organization support to succeed. State legislation like Ohio’s Senate Bill 39 should be enacted. SB 39 authorizes a nonrefundable insurance premiums tax credit for capital contributions to the construction of “transformational mixed use developments” (TMUDs), sets the credit at 10% of documented development costs or 10% of an insurance company’s capital contribution, and permits unclaimed credit amounts to be carried forward for up to five years, allows insurance companies to apply directly for the credit or to purchase the right to claim the credit from the property owner, establishes procedures by which the Director of Development Services may certify a development plan, monitor construction progress, and award tax credit certificates upon completion of the TMUD, sets a total project cost exceed of $50 million, but can include all phases of a project, creates an overall $100 million per fiscal year cap with no more than $40 million going to a single project, establishes project eligibility for both small and large cities: small city projects requirements ($20 million cap); development is not located within ten miles of a major city (100,000 or more) project includes at least one new or previously vacant building; is 4 or more stories; or is at least 250,000 sq ft.; and Large City project requirements ($80 million cap); development is located within ten miles of a major city; project includes at least one new or previously vacant building; is 15 stories in height; or is at least 350,000 sq. ft.. Efforts by state economic development organizations to retain and attract high-wage jobs and capital investment cannot have their resources diverted to COVID 19 public health needs. Local and state government have other resources including Rainy Day funds, bond debt from capital budgets, and unallocated agency resources that should be used to implement important COVID 19 public health responses.
State government stimulus packages can address public health and economic development concerns caused by COVID 19 to limits its damage to people and regional economies in 2020 and prepare for strong economic growth in the coming years.