Project SAFE (State Action in Fiscal Emergencies), is an effort by academics and their students to help states mitigate the fiscal crisis by providing policy recommendations backed by research. Projects will include:
State and local budgets are in crisis. The sudden decline in economic activity brought on by COVID-19 has dramatically reduced state and local tax revenues, creating extreme financial pressures for state and local governments.
Because state governments generally operate under balanced-budget constraints, in past recessions, they have typically cut spending and increasd taxes during economic downturns. For example, during the Great Recession, state spending cuts primarily fell on education, health and social services, and almost all states reduced employee compensation. These spending cuts deepened the economic crisis and undermined the federal government’s efforts to restart the economy.
This is no ordinary recession. The COVID-19 pandemic has already caused a breathtaking decline in state revenues. Nonessential business closures and social-distancing efforts have decimated sales tax collections, which normally generate about one-third of total state tax revenues. While people are still buying essential goods, such as groceries, these goods are generally subject to little or no sales tax. Income tax revenue, which normally generates about 35% of total state tax revenues, has plummeted as unemployment has soared. States are estimating dramatic revenue shortfalls. New York estimated a $15 billion decline in revenue for 2021, and Michigan estimated declines of up to $3 billion in 2020 and $4 billion in 2021. Virginia expects revenue to drop by $1 billion in the final quarter of 2020 alone. States saved in their rainy day funds, but no state’s savings are enough to ride out COVID-19.
Proposals listed on the Project SAFE website reflect the views of their authors, not the University of Virginia or its faculty, unless those faculty are listed as authors. Not all Project SAFE participants agree with all proposals. Media should direct inquiries about particular proposals to the author or authors of that proposal.