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Project, Plan, Provide, Perform: Impact of COVID-19 on Tax Administration

Posted on Apr. 27, 2020

To the Editor: 

If one thing has been made clear by the coronavirus pandemic, it is the profound impact state and local government officials can have on our lives. They must ensure agencies have the funds required to address a crisis and simultaneously ensure that regular government operations can continue largely uninterrupted. However, social distancing will continue to reduce consumer spending and wages — impacting tax revenues — and citizens will require more public assistance than ever before. Tax collection dates have been pushed out and tax enforcement activities are being curtailed. Add a recession into the mix and funding government budgets quickly seems daunting.

Prior to COVID-19, state tax revenues have been increasing at a 5 to 6 percent rate annually for several years with reserves at an all-time high, according to the U.S. Bureau of the Census, yet Moody’s forecasts now predict a U.S. recession until such time a vaccine is identified.

While Congress recently enacted a $2 trillion relief package — the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) — which sets aside $150 billion in grants to help state and local governments pay for the costs of the health crisis, this money will not be enough. It provides only half the amount earmarked for state and local governments as did the 2009 American Recovery and Reinvestment Act, which was provided during a time when we weren’t in a nationwide lockdown and consumers could still participate with the economy.

Each state will approach this situation differently. Most are extending tax filing dates while others are offering penalty abatements to taxpayers and may even consider adjusting tax rates to narrow severe budget shortfalls. Tax agencies will ultimately converge around the need to develop modeling and forecasts around the “Four Ps” — Project, Plan, Provide, and Perform — to make their way through this unprecedented time.


One of the most immediate challenges facing states is attempting to forecast tax revenues. The COVID-19 pandemic will be the big red “event” line in the time series data demarcating life as we know it. Analytical modeling of best- and worst-case scenarios for tax revenues will help governments develop spending plans that are most appropriate for our current fiscal and social situation.

State and local governments alike are all concerned about how property tax revenues could be impacted by commercial businesses not paying their rents, a sudden and significant drop in interest rates, or a decline-in-value or business personal property valuations. The Massachusetts Fiscal Alliance told The Boston Herald that municipalities will see property tax revenues drop and says there will be another “wave of this depression” by May if mortgage payments are not paid and residential property taxes decline. Suffice it to say that getting these forecasts as close to “right” as possible will have significant downstream effects on all of the planning and execution that follows.


State and local governments are now planning for the forecasted falloff in tax revenues that will materialize in short order which may involve reducing government spending and services in the short term or increasing taxes. State economists and budget analysts will be faced with a myriad of policy and operational options presented to them by their own leadership, tax experts such as what was provided by the Tax Foundation, their citizens and other states. States are facing numerous challenges in trying to propose the best options. First is having the technical resources to statistically model and simulate impacts on tax revenues and then compare which policy option is best, if any. This will have a significant impact on how smoothly a government can weather this storm and demonstrate the impact of selecting proverbial door number one, two or three.


States will use tax agencies as a financial lever to get money into the hands of citizens either through direct payments, tax credits, abatements or even possibly debt write-offs. This is where tax agencies tend to make media headlines. While oversight of corporate assistance programs has become de rigueur (à la TARP), taxpayers expect similar oversight of government assistance programs — even if that assistance comes in the form of a tax break. The real question is whether tax agencies can get these programs swiftly enough into place because once the money is gone, it’s gone. Several years ago, SAS was called upon by the U.S. Federal Government after the Deepwater Horizon Gulf oil spill to provide automated fraud detection on the reparation claims. A similar type of enterprise-scale oversight leveraging data analytics will be required here.

However, attention need not only be paid to the malefactor. Tax agencies can use similar techniques to proactively identify people and businesses who need help. Various methods can be used to identify populations underserved by these tax credits and breaks, and help to answer:

• What taxpayer segments and geographical regions do (and do not) seem to be availing themselves of our COVID-19 tax relief programs?

• What are our taxpayers telling us right now about what they need and how we are doing?


At the end of the day, taxpayers will be watching to see how their government performs. Tax agencies will need to report on their achievements — both internally and externally — long before the end of the COVID-19 pandemic is in sight. Beginning with the end in mind is a necessary component of determining a government’s strategy. It will not be enough to just continue reporting on the tried and true refund and returns processing cycle. There will need to be new measures of performance in this new and dynamic environment. Tax agencies would be well served to consider whether or not they have the support and tools in place to begin doing this today.

Deborah Pianko
Principal of Government Fraud and Security Intelligence Solutions, SAS

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