By GEOFF MULVIHILL, Associated Press
The coronavirus is pounding state governments with a financial one-two punch, costing them many millions to try to contain the disease just as businesses are shutting down and tax revenue is collapsing. The sharp drop in revenue could jeopardize some states’ ability to provide basic services.
“I am gravely concerned about our ability to deliver basic services over the next six months to a year given the drop in revenues, and that’s why I am encouraging the Legislature to be extremely fiscally prudent,” Oregon Gov. Kate Brown, a Democrat, said about building the budget for the coming fiscal year.
Many states are blowing through the multi-billion dollar rainy day funds they built up after the end of the Great Recession. Without that cushion, government finance experts say, states would have been in much worse shape.
Virginia expects to take a hit of up to $2 billion. The result: Lawmakers may rescind the 2% annual raises just promised to teachers.
Christine Melendez, a high school Spanish teacher in Chesterfield County, said losing the raises would be a “slap in the face” to teachers who have endured years of stagnant pay. Like teachers across the country, they are improvising online lesson plans after schools were shuttered.
Melendez predicted there would be fierce pushback if teacher pay is not improved.
“We can only take so much,” she said.
States will get help from the $2.2 trillion stimulus working its way through Congress. State, local and Native American tribal governments are in line for $150 billion in direct aid to combat the virus, and could get more through other parts of the legislation.
How far that will go is unclear as the outbreak grows more severe and shutdown measures are all but certain to be extended.
New York Gov. Andrew Cuomo, a Democrat, ripped the GOP-led Senate’s version of the coronavirus package as “terrible” for New York and said, based on preliminary reports, that it would send the state some $4 billion in direct aid. A Tax Foundation estimate shows the state government in line for nearly twice that much.
New York, which has become the epicenter of the coronavirus fight in the U.S., could see revenue drop by $15 billion, or about 8%, in the coming fiscal year, budget officials said. Another $12 billion that was expected to arrive soon will be delayed for months because the state, like others, is extending the tax filing deadline from April to July.
“The response to this virus has probably already cost us $1 billion. It will probably cost several billion dollars when we’re done,” Cuomo said. “I’m telling you, these numbers don’t work.”
The gloomy financial outlook is a sudden and stark turnaround after years in which a strong economy sent streams of cash into state coffers. Governors and lawmakers across the country had plans for that money: teacher raises, pre-K expansions, Medicaid for immigrants who are in the country illegally.
Those wish lists are now looking more like pipe dreams.
California has a $20 billion reserve but also relies heavily on capital gains, which swell the budget when the stock market is soaring. Gov. Gavin Newsom this week warned agency heads that a drop in economic activity would put their ambitions for new or expanded programs on hold.
In Ohio, Gov. Mike DeWine announced freezes on state-government hiring and new contract services. He also told cabinet members to look for immediate budget cuts of up to 20%.
Only a month ago, Minnesota officials said the surplus for the fiscal year that goes through June would be $1.5 billion — $200 million more than previously expected. Now Gov. Tim Walz says most of the surplus would be set aside to deal with uncertainties brought by the virus.
New Jersey announced this week that it would keep $920 million it had planned to spend between now and June to ensure cash flow. That’s more than 2% of the state’s current spending plan, but officials are warning that the budget impact could be deeper than that.
In Tennessee, Gov. Bill Lee is now basing his budget plan for the fiscal year that starts July 1 on having an economy with no growth. Previously, he anticipated a growth rate of 3%.
Arkansas Gov. Asa Hutchinson said the outbreak is projected to cause a drop of $353 million in state revenue through June. That represents about 6% of the state’s general fund budget.
For most people, the new coronavirus causes mild or moderate symptoms, such as fever and cough that clear up in two to three weeks. For some, especially older adults and people with existing health problems, it can cause more severe illness, including pneumonia and death.
States that depend on tourism are vulnerable.
The Nevada Resort Association says taxes on tourism have paid for about 38% of the state’s general fund budget in recent years. The governor there has frozen state hiring and limited government purchases.
Rhode Island loses about $1 million in state revenue for each day its two casinos are closed. Gov. Gina Raimondo is warning that the virus’ widening economic fallout could lead to government layoffs in a state that already was facing a $200 million shortfall. Rhode Island lawmakers also approved borrowing up to $300 million to help the state cover its bills.
“Furloughs and layoffs are things you want to avoid at all costs,” Raimondo said. “They were considered in the last recession, but it all depends on how quick we get the economy back on track and how robust the federal government response is.”
Mulvihill reported from Cherry Hill, New Jersey. Associated Press writers Christina A. Cassidy in Atlanta; Andrew DeMillo in Little Rock, Arkansas; Melinda Deslatte in Baton Rouge, Louisiana; Gillian Flaccus in Portland, Oregon; Steve Karnowski in Minneapolis; Morgan Lee in Santa Fe, New Mexico; Philip Marcelo in Boston; Michelle Price in Las Vegas; Alan Suderman in Richmond, Virginia; Marina Villeneuve in Albany, New York; and Andrew Welsh Huggins in Columbus, Ohio, contributed to this report.
Follow Mulvihill at http://www.twitter.com/geoffmulvihill
Copyright 2020 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Global stocks tumble after dire warnings on virus toll
A new quarter brought a fresh jolt of volatility to global equity markets on Wednesday, with Wall Street opening down as the coronavirus crisis worsened in the US and pressure on economies around the world mounted.
The S&P 500 fell 3.7 per cent as trading began, with banks and technology stocks particularly hard hit. The Nasdaq Composite declined 3.1 per cent.
London’s FTSE 100 dropped 3.7 per cent while Frankfurt’s Dax and Paris’s CAC 40 were down roughly 4 per cent. The Europe Stoxx 600 fell 3.2 per cent.
The new leg down for global equities, which followed the worst quarter for markets since the 2008 financial crisis, came after President Donald Trump warned that up to 240,000 people could die in the US from Covid-19.
Italy and Spain, the two worst-hit countries in Europe, have shown some signs of improvement in recent days, as the centre of the coronavirus crisis quickly shifts to the US.
“Europe seems to have reached, if not [passed], the peak in new infections,” said Marco Wagner, economist at Commerzbank. “In the US, on the other hand, the situation is becoming more acute. A flattening of the infection curve is still not apparent.”
On Tuesday, Mr Trump warned Americans of a “very, very painful two weeks” ahead while Anthony Fauci, a top government health official, said people should be prepared for high fatalities.
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The world’s biggest economy, like many others, has already shown severe signs of strain from the lockdowns prompted by the pandemic, with the number of people seeking unemployment benefits shooting late last month to a historic high of 3m.
In a sign of the heavy blow faced by investors globally, the UK’s biggest banks announced after the close of trading on Tuesday that they would scrap billions of pounds worth of dividends under pressure from the country’s top financial regulator.
Bank shares dropped on Wednesday, with HSBC down about 9 per cent, and Barclays, Lloyds Banking Group and Royal Bank of Scotland falling about 5 per cent. US banks tracked their European counterparts lower, with broader KBW bank index, one of the most widely tracked measures of the performance of the US banking sector, down 6 per cent.
Business executives in the eurozone, Japan and South Korea reported a marked deterioration in the factory sector in March compared with February, according to purchasing managers’ indices that are closely watched by investors as leading economic indicators.
Robert Carnell, Asia-Pacific head of research at ING, said Wednesday’s Asia PMI readings confirmed a “grim picture” for manufacturers. He added that “the prospect for most economies’ manufacturing sectors as they head into the second quarter is for even more weakness, exacerbated where lockdown measures are newly enacted or tightened”.
Most Asian markets were lower, with Japan’s Topix down 3.7 per cent and South Korea’s Kospi off 3.9 per cent. China’s CSI 300 slipped 0.3 per cent.
The Institute for Supply Management is also set to publish its latest reading on the US factory sector, which is considered to be one of the best forward-looking proxies for the rate of change in US gross domestic product. Economists polled by Reuters expect the ISM gauge to sink to 45 in March from 50.1 the previous month. A reading below 50 points to a contraction in the sector.
Global equities had rallied over the last week amid quarter-end portfolio rebalancing, and as investors pinned their hopes on huge stimulus efforts by policymakers and the eventual slowing of the spread of Covid-19.
The yield on 10-year US Treasuries, viewed as a haven during times of market uncertainty, slipped 0.09 percentage points to 0.611 per cent. Yields fall as bond prices rise.
Stock Markets in Asia Dip on Dire U.S. Warning: Live Updates
Asian markets drift lower on glum investor sentiment.
Markets fell in early Wednesday trading in Asia as investors digested a steady drip of worrying news about the economic ramifications of the global coronavirus outbreak.
Major indexes in Japan, Hong Kong and South Korea were modestly lower midday, as financial markets settled into a slow grind of bad news. While the panic of recent weeks appeared to have subsided, numerous signs pointed to glum prospects for a quick recovery.
After Wall Street’s Tuesday close, President Trump said at a news conference that the United States would face “a very painful, very very painful two weeks.” U.S. government scientists projected that the outbreak could kill up to 240,000 Americans.
Futures markets predicted Europe and the United States would open lower later on Wednesday. Prices for long-term U.S. Treasury bonds, a traditional investment safe haven, rose, as did gold futures. Oil prices were mixed.
By early afternoon, Tokyo’s Nikkei 225 index had slid 1.8 percent and the Hang Seng index in Hong Kong had dropped 0.9 percent. South Korea’s Kospi was down 0.1 percent. Markets in mainland China, which often move at odds with stocks elsewhere, were modestly higher, with the Shanghai Composite index rising 0.4 percent.
Wall Street’s stomach-churning month ends with a drop.
March was a month of head-snapping turns in financial markets: The S&P 500 suffered its worst one-day drop since 1987 before later recording its best three-day run since 1933, oil prices crashed, interest rates plunged and Wall Street’s more esoteric markets seized up.
The roller coaster came as investors found themselves overwhelmed by a shutdown of the world economy. Early in the month, the record-breaking, 11-year bull market ended, and trading was halted more than once to prevent a crash.
An enormous fiscal and policy response at the end of the month helped undo some of the worst of the damage. The S&P 500 recouped more than half of its losses in the final week of the month after lawmakers passed a $2 trillion spending package and the Federal Reserve said it would buy an unlimited amount of government-backed debt to keep markets functioning.
But even as stocks rebounded well off their lowest point, March was the worst month for the S&P 500 since October 2008, when investors feared a collapse of the economy in the wake of the global financial crisis. The S&P 500 fell 12.5 percent this month. The index is down 20 percent so far this year.
On Tuesday, stocks fell 1.6 percent.
Calmer markets do not mean the worst is over. As consumers stay home and factories shut down, millions of workers have lost their jobs. Economic data showing the scale of the damage has only just begun to roll in, and Wall Street analysts continue to downgrade expectations for the economy.
Inside the fast-moving market for masks.
The stakes are high, and so are the prices. Wholesale costs for N95 respirators, a crucial type of mask for protecting medical workers, have quintupled. Trans-Pacific airfreight charges have tripled.
Global desperation to protect front-line medical workers battling the coronavirus epidemic has spurred a mad global scramble for masks and other protective gear.
The White House announced over the weekend that it had organized 22 flights to airlift personal protection equipment. They are aimed at resupplying hospitals that are within 72 hours of running out of protection equipment, said Gregory Forrester, the chief executive of National Voluntary Organizations Active in Disaster.
“If any one of these planes don’t take off,” Mr. Forrester said, “that’s going to be an issue.”
China has become a major part of the solution. Already a giant in mask manufacturing, it has ramped up production to nearly 12 times its earlier level. It was a huge mobilization effort that involved redesigning freight train routes and sending large numbers of workers across the country in sealed buses.
The Chinese government has encouraged global deals, but buying and selling masks is no easy feat. Traders, some just weeks into their new but unstable careers, have to navigate confusion, fraud attempts, byzantine customs laws and other barriers.
New Japanese data points to growing risk to the country’s economy.
Japan’s factory activity in March slowed to its lowest rate in a decade and its manufacturers are increasingly pessimistic about the state of the country’s economy, data showed on Wednesday, in the latest indications of the pressure that the coronavirus is putting on Japanese businesses.
The country’s economy was already on the brink of a technical recession — two consecutive quarters of contraction — following a 7.1 percent drop in economic output in the final three months of last year.
But a gauge of factory output, known as the purchasing manager’s index, fell to 44.8 in a monthly survey by Jibun Bank and IHS Markit. A reading less than 50 indicates economic contraction.
The reading was the lowest level since 2009, when the country was grappling with the impact of the global financial crisis.
Separately, Japanese manufacturers’ concerns about the course of the economy over the coming three months have sharpened dramatically, turning negative for the first time since 2011, in the aftermath of the Fukushima nuclear disaster, according to a central bank survey of business conditions, known as the Tankan, that was released on Wednesday.
So far, Japan has managed to limit the spread of the coronavirus without resorting to the kinds of strict measures that have caused widespread economic shutdowns in the United States, China and Europe.
But plummeting demand from those areas and disruptions to global supply chains have nevertheless driven Japanese manufacturers to cut back production.
The Japanese automaker Subaru announced on Wednesday it was temporarily suspending activity in some of its factories at home and in the United States. The announcement followed similar decisions by other automakers, including Toyota, which announced last month that it would pause work at some domestic facilities.
A Chinese critic’s disappearance suggests a hard line on blaming the government.
Friends of Ren Zhiqiang, a well-known former property mogul and Communist Party member in China, say he has disappeared after writing an essay critical of the Chinese government’s response to the coronavirus outbreak.
The essay, which was shared widely within private internet message groups, never named Xi Jinping, China’s top leader, but it faulted the actions of a power-hungry “clown” and the Communist Party’s strict limits on free speech. It declared that the party should “wake up from ignorance” and oust the leaders holding it back, just as it did with the leaders known as the “Gang of Four” in 1976, ending the turmoil of the Cultural Revolution.
The disappearance of Mr. Ren, a longtime critic of the Chinese government who amassed nearly 38 million Weibo followers before his account was deleted in 2016, adds to fears that China is sliding backward and abandoning the reforms that saved it from extreme poverty and international isolation. His fate suggests China’s leadership won’t tolerate criticism of its actions during the outbreak.
Public health officials pushed airlines to collect passenger data. They refused.
For 15 years, the U.S. government has been pressing airlines to prepare for a possible pandemic by collecting passengers’ contact information so that public health authorities could track down people exposed to a contagious virus.
The airlines have repeatedly refused, even this month as the coronavirus proliferated across the United States. Now the country is paying a price.
As the coronavirus spread into the United States earlier this year, the federal government was not able to get in touch with or monitor airline passengers who might have been exposed to the disease or were bringing it into new communities.
Airline executives and lobbyists have protested that it would be expensive and time-consuming for them to start collecting basic information like email addresses and phone numbers for all passengers.
Reporting was contributed by Ben Dooley, Li Yuan, Keith Bradsher, Carlos Tejada and Daniel Victor.
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