COVID-19 Disrupts Municipalities

Why have tax revenues rallied unexpectedly for California? Will taxing millionaires accelerate outmigration from New York?

    Jennifer Johnston

    Jennifer JohnstonDirector of Research, Muni Bonds, Franklin Templeton Fixed Income

    Ben Barber

    Ben BarberDirector, Muni Bonds, Franklin Templeton Fixed Income


    In June of 2020, we published a credit research paper appraising the ability of state governments to withstand the pandemic’s upheavals. At the time, we thought rating reductions were likely if more direct federal funding for states didn’t materialize. Although that stimulus didn’t arrive, by September the two biggest credit-rating firms had only downgraded about 1% of the muni borrowers they rate.1 Apart from some high-profile downgrades (including New York and New Jersey in late fall) the muni credit markets finished 2020 buoyed by breakthrough vaccines and signs that state and local tax collections were better than anticipated. That said, many governors still face tough choices when it comes to budget shortfalls: they must either raise revenues, cut spending, or both. In this paper, we explain why tax revenues have rallied unexpectedly for California, and begin to explore if working remotely will accelerate outmigration from New York City.



    1. Source: Braun, M. “Muni-Bond Downgrades Rare Even With Few Spared Pandemic’s Blows.” Bloomberg September 14, 2020.


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