The United States is confronted by an unprecedented crisis with the coronavirus (COVID-19) pandemic. From an economic standpoint, the COVID-19 crisis is being compared to the Great Depression with the growing army of unemployed Americans and the possible historic loss in state and local tax revenues. In March, Iowa along with other states, closed the economy except for essential businesses to contain the virus. Social distancing and shelter-in-place policies have resulted in numerous business closers and thousands of Iowans unemployed. Prior to the COVID-19 health emergency, Iowa had low unemployment. Although it is still too early to understand the full economic impact of COVID-19 on Iowa, it is creating economic uncertainty.
The good news for Iowa is that as the COVID-19 emergency began, Iowa had $800 million in budget reserves and a surplus of $200 million. With economic uncertainty likely to linger, Iowa’s budget is positioned much better than some of our neighbors to dampen the financial impact of this pandemic. Some estimates demonstrate Iowa is in a better fiscal situation to confront a COVID-19 economic downturn than on the eve of the Great Recession.
To help Iowans understand the potential economic impact of COVID-19 on the economy, TEF Iowa has teamed up with economists Ernie Goss, Ph.D., MacAllister Chair in Regional Economics at Creighton University and Scott Strain, M.S., who is a Senior Economist with Goss & Associates.
In The Economic Impact of COVID-19 On The Iowa Economy: A First Cut, Goss and Strain examine unemployment, tax revenues, among other aspects of the economic impact caused by the virus. It is important to note that the findings within this report are estimates based on the available information, and the calculations performed by Goss & Associates. For example, it is too early to know what impact the various stimulus measures from the federal government will have on Iowa’s economy.
The COVID-19 situation is very fluid and based on the available data at this time the virus will have a considerable impact on Iowa’s economy. In terms of unemployment, Goss and Strain estimate that April’s unemployment rate for Iowa is between 13 percent and 16 percent. In addition, an estimated 180,000 or 10.5 percent of the state’s labor force is receiving unemployment compensation.
At this time, Goss and Strain estimate that Iowa’s economy has lost $1.6 billion in overall economic activity. This includes the loss of 243,237 in direct and spillover jobs, $557.8 million in lost wages and salaries, and $73.7 million in lost self-employment income. A recent study by the Center for Agricultural and Rural Development at Iowa State University estimates COVID-19’s impact on Iowa’s agriculture is approximately $6 billion per year loss.
A major concern for state and local policymakers in Iowa is the potential catastrophic loss in tax revenue. Some estimates predict that state budgets could take a 15 or 25 percent hit as a result of the virus. It is still too early to determine the impact on state and local tax revenues, but Governor Kim Reynolds is already working on a new budget proposal.
At this time Goss and Strain, based on their modeling, estimate that state and local tax collections will be reduced by $112.1 million. These losses include $37.2 million in sales tax revenues, $26.8 million in individual income tax revenues, $3.1 million in corporate tax revenues, $36.6 million in property tax revenues, and $8.3 million in other taxes and fees.
Goss and Strain predict that Iowa’s 2020 GDP could decline by 9.7 percent. This figure does not reflect any federal support from the CARES Act and other current or future federal stimulus programs. Under the CARES Act, Iowa will receive $1.2 billion in federal aid, but it is still not clear how much of this aid can be used to support lost state tax revenue or to support local governments. Iowa small businesses have also received state grant aid and other federal aid to help business survive this crisis.
The Economic Impact of COVID-19 On The Iowa Economy: A First Cut demonstrates the serious economic problems created by the COVID-19 health emergency. Although Iowans are ready for the economy to reopen and for the warm spring and summer weather, but we may need to prepare for an economic winter.