Reopening: Weighing economic challenges against public health
The massive toll the COVID-19 pandemic has taken on the U.S. economy is stark and undeniable. The path to recovery — medical and economic — remains murky and unclear.
So far the toll in America is more than 87,000 dead and nearly 1.5 million known to be infected. It is also an official unemployment rate of 17.2% and 27.2 million people claiming unemployment benefits.
A Morgan Stanley forecast predicts a 38% annualized drop in economic activity in the second quarter of 2020, a shallower rebound in the third quarter, and activity not returning to its pre-virus level until the end of 2021.
All states have begun easing at least some social districting restrictions imposed to reduce the spread of the coronavirus, some more than others.
But allowing people to do things doesn’t mean people who are wary of the virus will do them.
“Unfortunately, we think a large number of workers won’t be able to return to work until a vaccine is abundantly available, since social distancing can’t be fully realized until we have herd immunity, meaning about 60% of the population has been vaccinated,” Morgan Stanley analysts wrote. “Furthermore, large venues, such as sports stadiums, concert halls and theme parks, are also likely to remain shut or have attendance capped at 10% to 25% of prior levels.”
In California, when Gov. Gavin Newsom ordered residents to stay at home in mid-March, he said the move was intended to buy public health workers time to put systems in place so that hospitals would not be overwhelmed with cases as they were on the East Coast.
That surge never hit California hospitals, and the governor has been loosening stay-at-home restrictions and giving more leeway to county public health officials.
“We recognize the conditions across the state are unique and distinctive depending where you are,” Newsom said. He said he felt comfortable taking a bigger step toward reopening based on COVID-19 hospitalization and treatment data, and because of increased testing and the availability of more protective gear for healthcare workers.
California has fared better than other parts of the nation in its fight against the coronavirus, but Southern California is doing worse than the rest of the state.
Los Angeles County recorded its second-most daily deaths Tuesday with 76; as of Tuesday afternoon, 1,970 people had died, out of 3,436 throughout the state, according to the county Department of Health. The county is seeing 940 new cases each day, according to Los Angeles Mayor Eric Garcetti.
Garcetti declared a fiscal emergency in April when he unveiled the city’s $10.5 billion budget for fiscal year 2020-21.
Los Angeles took baby steps early this week toward easing social distancing restrictions, but Garcetti first ordered that all residents must wear masks while out in public.
Nationally, daily deaths from COVID-19 have been declining. But, given the time it takes for COVID-19 symptoms to appear, it remains to be seen what impact the lessening of social distancing restrictions this month will have on the pandemic.
Gloomy tax revenue numbers and the economic realities for the nation’s poorest people have to be balanced against the toll COVID-19 is taking on the health of Americans.
A timeline created by Morgan Stanley’s biotech team predicted a second wave of cases would hit the U.S. in November, a few months after schools reopen in late August and early September.
“While the second peak is unlikely to be as severe as the first, roughly 10,000 to 15,000 new cases daily versus 30,000 to 35,000 in the first peak, it means that the U.S. outbreak will have a very long tail,” Morgan Stanley analysts wrote.
New York City is the pandemic’s American epicenter, with 15,370 deaths as of Tuesday of the almost 23,000 statewide, according to the state health department.
New York State began a four-phase reopening plan on May 15 following a nearly two-month pause order that shut down nonessential businesses. The closures took a financial toll on New York revenues with sales tax collections down $332 million for April compared to a year ago, according to a May 15 report released by State Comptroller Tom DiNapoli.
Seven upstate regions of New York’s 10 have met required safety metrics to begin the first phase of the state reopening plan, which includes retail curbside pickup, construction, manufacturing and wholesale trade. But New York City and its nearest suburbs in Westchester County and Long Island have not yet met standards to begin reopening.
“Until downstate gets reopened to a greater extent the state’s finances are not really going to get recouped that much,” said Howard Cure, director of municipal bond credit research at Evercore Wealth Management. “It’s going to take a while and it’s going to be slow.”
Neighboring New Jersey shut nonessential businesses at the same time as New York and is also working toward a multi-stage reopening plan.
April revenue collections for all of New Jersey’s major taxes fell $3.5 billion, or 59.7%, compared to a year ago, according to State Treasurer Elizabeth Maher Muoio. She issued a voluntary disclosure statement to bondholders on May 13 showing an estimated $10 billion budget shortfall through the 2021 fiscal year.
New Jersey faces many obstacles in battling back from COVID-19 given that sales taxes comprise the state’s largest revenue source and property taxes are already the highest in the nation, Cure said. New Jersey also has very low reserves to withstand a major economic downturn after the state went a decade with no rainy day fund deposits until last year.
“New Jersey, like New York, is hoping to get federal aid to get through this and that is far from certain,” Cure said. “They are under a lot of pressure.”
In the Southeast, Florida Gov. Ron DeSantis continues a phased opening of the state despite fluctuating data and recent allegations by Rebekah Jones, a health department manager, that she was asked to manipulate information on the state's COVID-19 dashboard to support the governor's reopening strategy.
DeSantis called Jones' allegations a "nonissue." She was fired Monday for insubordination, the governor’s office said.
As of Wednesday, Florida reported 47,471 confirmed COVID-19 cases and 2,096 deaths statewide. The hotspot remains South Florida. Known as a retirees’ haven, the Sunshine State has reported 938 deaths among staff and residents at long-term care facilities.
Some states, like California, have robust reserves to help as they spend to battle the pandemic while taking huge revenue hits resulting from closures, but others, including Illinois, already faced economic challenges before the outbreak.
Fitch Ratings analysts explained during a Tuesday webinar why all of the issuers it rates don’t have negative outlooks given that all municipalities are struggling and have seen huge declines in revenues.
While no issuer is immune, some came into the pandemic in better shape than others, the analysts said.
“We are concerned with longer term revenue forecasts,” said Amy Laskey, a Fitch managing director. “We are concerned with what revenue growth was like for the municipality, before the pandemic.”
Only a vaccine can provide a true solution to this pandemic, according to the Morgan Stanley analysts. But effective treatments for COVID-19 would help.
“Promising antivirals and antibody therapies are in the pipeline, with data starting in April and continuing through the late summer,” the Morgan Stanley analysts wrote. “We believe that at least some of these drugs can be successful and help to turn severe cases into milder forms of the disease.”
Such an outcome could reduce the potential strain on hospitals and allow public-health officials to support a broader reopening of the economy before a vaccine is available, Morgan Stanley analysts wrote.
“Thus, with therapeutics available in the near term and a vaccine on the horizon, the market could start to look through the slow U.S. recovery and back to pricing in future growth,” Morgan Stanley analysts wrote.
If state and local lawmakers maintain strict stay-at-home orders, they gamble not only with their region’s economic viability, but that residents most at risk of starvation or homelessness could be pushed over the precipice.
The U.S. also cannot simply imitate what has worked in other countries. There is no national reopening plan in this country that would mimic what has occurred in places like Taiwan. In the U.S., the Trump administration has left the decision up to governors in the 50 states.
So far, the governor’s re-opening plans appear to either outright ignore, or loosely interpret the Trump administration’s nonbinding and bare-boned strictures, created in conjunction with the Center for Disease Control.
Newsom has said repeatedly that California would need to see steady declines in coronavirus cases and deaths. But two months into the state’s shelter-in-place order, the number of cases continues to rise and deaths remain at a plateau.
Oregon Gov. Kate Brown recently won a stay from the state’s Supreme Court in a lawsuit filed by Elkhorn Baptist Church challenging the state’s order limiting activities.
“Following swift action by the Oregon Supreme Court, my emergency orders to protect the health and safety of Oregonians will remain in effect statewide while the court hears arguments in this lawsuit,” Brown said in a statement. “From the beginning of this crisis, I have worked within my authority, using science and data as my guide, heeding the advice of medical experts."
“There are no shortcuts for us to return to life as it was before the pandemic,” Brown said.
Southeast regional editor Shelly Sigo contributed to this article.