By Blair Hess, The Council of State Governments
The Council of State Governments and its research and analysis partner KPMG LLP discussed the findings of the new report, “COVID-19: Fiscal Impact to the States and Strategies for Recovery,” as well as some of the planning that went into how the organization established the parameters with which it would analyze risk and recovery.
“The key contribution of this report is really that it scores fiscal risk and resiliency for all 50 states across lots of categories,” said Dr. Uma Radhakrishnan, managing director of KPMG Economic and Valuation Services Practice. “This allows states to compare themselves nationally and regionally on their level of preparedness to face economic downturn from a fiscal perspective.”
This report, which examines near-term budget impacts, the economic risk of ongoing pandemic effects and shutdowns, the resiliency of states to respond and strategies for fiscal recovery, not only helps states understand continuing economic risk but also how to recover.
“By analyzing risk and resiliency together a single unified framework, states are able to identify the challenges they face as well as how bet to use their strengths to deal with those economic struggles,” Radhakrishnan said.
CSG together with KPMG, a global accounting firm, considered two important questions before determining what parameters they would establish for evaluating the fiscal impact of COVID-19 on states:
- How do you assess the impact of COVID-19 on the states?
- What is the value of this information to the states and how will it help them in their decision making in the future?
From there, a scoring mechanism was established to ensure that the information presented in the report would be clear, concise and relevant as well as easy to apply to the states. The report establishes five factors of risk and six factors of resiliency:
Five Risk Factors –
1. Revenue decline % compared to pre-COVID revenue estimates.
2. Estimated state-funded Medicaid expense increase
3. Estimated unemployment insurance weeks remaining
4. Industry sector-based economic risk (based on employment changes)
5. Targeted financial market return % for pension investment trust
Six Resiliency Factors –
1. Rainy-day fund % coverage of general fund revenue (Note: more than 50% of stats had increased these before 2020)
2. Debt service coverage (operating income % of debt interest expenses)
3. Pension funded coverage (employee and employer contributions % of pension liabilities)
4. Unemployment insurance trust solvency
5. Average state-covered Medicaid expenses per enrollee
6. Per-student K-12 education funding higher than pre-Great Recession Level
It is important to note as you read the report, everything around us is changing, Radhakrishnan said. That means uncertainty and situations that are constantly evolving, public and health policy interventions regularly changing and other factors that could impact the risk and resiliency scores for each state.
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