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Smith's Research & Gradings
Volume: 
XXIX
Issue: 
2
Author: 
February 1, 2021

Smith's Research & Gradings

KBRA: State Revenues Beating Predictions

KBRA: State Revenues Beating Predictions

Kroll Bond Rating Agency's (KBRA)review of state revenue was lead by Paul Kwiatkoski, Managing Director.  The State revenue losses show the results may be much less severe than originally estimated. In the months following the onset of the Coronavirus Pandemic, "the expected economic knock-on effects were severe due to the near cessation of economic activity throughout parts of the nation," with conditions only gradually improving through 2020 and beyond. Many states based their 2021 estimated revenues based on these early forecasts.

Estimates of national unemployment rates played a large roll in the miscalculations, Mr. Kwiatkoski explained. The Center on Budget and Policy Priorities (CBPP) based its state revenue estimates of May 2020 on Congressional Budget Office (CBO) forecasts of national unemployment rates that were expected to hit 11.5% at year-end 2020,before falling to 8.6% at year-end 2021.

"Other observers forecast even more dire economic conditions," Mr. Kwiatkoski said. "Goldman Sachs forecast a peak unemployment rate of 25% in the second quarter 2020. The actual level of unemployment was not this severe,having peaked at 14.8% in April 2020 before dropping to 6.7% at the end of 2020. In light of economic performance faring better than originally forecast and the strong link between state revenue collections and economic performance, state revenues were underestimated in many budget forecasts."

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Beirut’s Agony: Ports, Food, and China

On August 4th the port of Beirut was the scene of a horrific explosion, which killed more than 150 people, injured 6,000 and left some 300,000 homeless. The damages are estimated to be in excess of $15 billion. The city’s hospitals, already struggling due to the COVID-19 pandemic, were damaged by the blast and swamped with injured. On top of already raging economic and political crises, the explosion now raises the question of food security. Prior to the explosion, 80 percent of Lebanon’s imports passed through Beirut’s port. Without a functioning port in Beirut, the country now relies on a handful of secondary ports, chief among them being Tripoli in the north, to import food and to export its products.

California Confronts the Gap

The state has a long history of closing budget gaps. This time should be no different. The reasons for the gaps vary over time. This time is different due to the delay in tax collections in the state to November of 2023 due to the climate change induced events that had taken place. What is the same factor this time is that capital gains declined appreciably in 2022 into 2023 due to the downturn in the markets. The turnaround for the markets did not take place until late 2023.

La Niña and Arctic Oscillation Bring Winter Storms

Extreme winter weather hit 44 states and caused power outages for millions of Americans. Texas reported 10 deaths due to the cold temperatures. Smith's ESGradings has conducted decades of research on climate change. This year's events are due, in part, to La Nina.

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