Local Governments Could Lose Millions Because Of Pandemic

Apr 10, 2020

File photo of small businesses in Brightleaf Square shopping center. According to a study from N.C. State, county governments in North Carolina could lose an average of more than $4 million in sales tax revenue as a result of changed spending habits caused by the coronavirus pandemic.
Credit Laura Candler

County governments in North Carolina could lose an average of $4 million in sales tax revenue as a result of changed spending habits caused by the coronavirus pandemic, according to an ongoing study from N.C. State University.

People are spending less because non-essential businesses are closed under stay-at-home orders from local and state governments. As a result, counties are generating less sales tax revenue. People are spending more on groceries and cleaning supplies, but those items are taxed at lower rates and that revenue is not enough to make up the loss. 

According to the working report, a loss of over $4 million is based on the best-case scenario of a 20% to 25% decline in sales tax revenue for the remainder of the fiscal year. The worst-case scenario is a 50% loss, where the average county in North Carolina will lose over $8 million.

N.C. State finance professor and study co-author Bruce McDonald said finances were tight in many North Carolina counties to begin with, especially those now hardest hit by the virus, like Wake and Mecklenburg. 

"As the counties start responding back towards the outbreak, as they're trying to provide services, trying to provide stability for their community, expenditures goes up, all while revenues are going down, which just further pushes them over to the fiscally unhealthy side," McDonald said. 

The report concludes that even with modest reductions in sales tax revenue, the number of counties in the state facing a fiscal health crisis is expected to increase about 43% in the next several months.

"This dramatic rise... raises concerns for the ability of local governments to provide core services, but also about their ability to continue their response to the coronavirus outbreak," the study states. 

McDonald said local governments likely will have to cut or reduce services and increase property taxes after the pandemic to recuperate their losses.