2020 Fiscal Briefs

7/2/2020

NCSL Fiscal Briefs are snapshots of timely state budget and tax issues. July's Fiscal Brief provides insight into what happens when a state budget is not passed on time, and the disruption of the budget process from the COVID-19 pandemic.

March Fiscal Brief: A Quick Take on Traditional and Electronic Cigarette Taxes

ncsl fiscal brief logoIt’s rare to find a truly popular tax, but the tobacco tax comes pretty close. Majorities of Democrats, Republicans and Independents support it. Not only can it bring in a decent amount of revenue, but states with higher tobacco tax rates tend to have lower smoking rates. Tobacco is taxed by all levels of government. The federal government does so on a “unit” basis, imposing a tax of $50.33 for every 1,000 units of cigarettes sold ($1.01 per pack). All states levy an excise tax on cigarettes, and a few states allow localities to tax on them, too. Most state cigarette taxes are ad valorem taxes based on the wholesale price (i.e., the price of bulk sales from manufacturers to distributors) rather than retail price, but some are based on weight. Washington, D.C., has the highest cigarette tax rate at $4.98 per pack (roughly one quarter per cigarette), while Missouri has the lowest tax rate of $0.17 per pack ($0.0085 per cigarette). The average state cigarette tax rate is $1.81 per pack

“Sin” taxes including the tobacco tax are meant to cover the costs of negative externalities associated with the consumption or production of a good. Cigarettes are strongly correlated with cancer and other health issues, which are expensive to treat and add to the costs of programs such as Medicare and Medicaid. The excise tax on tobacco consumption helps offset those costs. Increasing the price of tobacco products is also meant to discourage consumption and improve public health. For states facing tight budget conditions, however, the rationale behind increasing cigarette tax rates is more about raising revenue. Because cigarette taxes have such popular support, raising these taxes isn’t as hard of a sell as other, broad-based taxes. In 2019 alone, three states (Illinois, Maine and New Mexico) increased cigarette taxes and at least a few states have enacted increases every year over the last five years.  

The win-win nature of the cigarette tax isn’t always straightforward. If the tax works as advertised and discourages the consumption of cigarettes, then tying the revenue to growing spending categories could lead to funding gaps. Using the tax as a budgetary Band-Aid can also conflict with the tax’s public health aims. Only a few states couple their cigarette taxes with statutory requirements that dedicate the revenue toward tobacco control programs. 

 High cigarette tax rates can also have the unintended consequence of cultivating a growing illicit tobacco market. The Mackinac Center estimated that in New York, the state with the second-highest cigarette tax rate, cigarette smuggling accounts for nearly 57% of total cigarette consumption. States have taken steps to combat black market tobacco products; most require tobacco tax stamps to be affixed to cigarette cartons before they can be sold legally, signifying proof of tax payment. However, most tax stamps are simple paper stamps and can be subject to counterfeiting. Only four states have adopted measures that require tax stamps to include “high-tech” features such as encryption, holograms and scannable barcodes

Attention has centered on the extent of the cigarette tax’s regressivity, and whether tax revenue comes primarily from the poor, who tend to smoke more. Proponents of higher rates claim that because low-income individuals are more sensitive to price increases, higher taxes make them the most likely to quit and, consequently, the primary beneficiaries of the tax. But evidence shows that, in spite of price increases, the gap in smoking rates between lower- and higher-income groups is growing. The New York State Department of Health found that between 2000 and 2009, smoking prevalence in the state declined significantly, yet no changes were noted for adults with low incomes, poor education and poor mental health. CDC data shows that members of these demographics struggle the most to beat their addiction. 

While combating smoking through the tax code yields results, unintended consequences may exist, and the reasons for levying the tax in the first place could be at odds with each other. Yet, smoking is still a public health epidemic, remaining the leading cause of preventable disease and death in the United States, and the growth in electronic cigarette usage has heightened these public health concerns. 

As e-cigarettes have become increasingly popular, states have scrambled to apply taxes to these newer tobacco products. Recent efforts have primarily been driven by young peoples’ growing preference for vape products. According to the University of Michigan’s Monitoring the Future survey, the number of secondary students who have vaped nicotine in the past month more than doubled between 2017 to 2019.  

As of March 1, 21 states and D.C. have enacted new taxes or expanded existing tobacco taxes to include e-cigarettes. States have taken three approaches to taxing these products. Ten states tax this product at a percentage of its price, with rates ranging from 15% to 95%. The majority of states that have taken this approach levy a tax on the wholesale price, but some apply these taxes on the retail price. Proponents for applying this type of tax to vape products have argued that imposing a tax on volume could result in more sales of highly concentrated e-liquid. A second group of states apply a flat rate either based on weight, ranging from 5 cents to 40 cents per milliliter of e-liquid, or per cartridge. Supporters of tax structures based on weight argue that it does not encourage certain products over others. Lastly, several states apply a combination of these approaches.  

Vaping tax map

NCSL Contacts:

Additional Resources

April Fiscal Brief: Looking Back with a Crisis on the Horizon—How States Closed Budget Gaps During the Great Recession

By Jackson Brainerd

ncsl fiscal brief logoThe impact COVID-19 is having on the American economy is unprecedented. The gears of production are grinding to halt as businesses close and workers across the nation engage in social distancing to stop the spread of the virus. Short-term unemployment rates are skyrocketing.

According to S&P Global Ratings: “While economic data for March is just starting to be released, the severity of the blow from the coronavirus leads us to believe that the U.S. is entering recession--if not already in one.” As if this wasn’t enough, an ongoing global oil price war, somewhat hidden from the headlines in the midst of the ongoing public health crisis, is wreaking havoc on America’s energy sector.

While the full economic ramifications of these disruptions are still unknown, it is safe to say that state coffers will soon be under significant distress. Most major revenue sources will be affected. Decreased consumer spending will mean lower sales tax revenues. Travel restrictions will result in lower collections for lodging, car rental, and other tourism-related taxes. Job losses and reduced economic activity will reduce personal income and corporate income tax collections. The fall of the stock market will reduce capital gains collections. Lower oil prices and fewer drivers on the road will reduce gas tax collections. The damage to the oil and gas industry will significantly affect severance tax-reliant states. Gambling tax receipts are sure to be down as casinos across the country close their doors.

Some state revenue problems are more immediate than others. The federal government has sought to provide relief to taxpayers by delaying the filing and payment deadlines, which will have a significant effect on state FY 2020 budgets.

Most states automatically couple their income tax deadlines to the federal government’s. According to the Federation of State Tax Administrators, “the shift from April 15 to July 15 pushes revenues from the current fiscal year, where they have already been budgeted, into the next fiscal year. That budget issue is difficult, but the loss of cash flow creates the larger crisis. States had counted on receiving many billions of dollars in income tax reconciliation payments during April, money that had been budgeted for everything from paying taxpayer refunds to paying the state’s share of Medicaid. That loss of cash on hand cannot be replaced easily or cheaply.” Difficult times are ahead, and states will need to respond as quickly and effectively as possible.

While the current fiscal crisis is unique, it may be helpful to revisit revenue actions during the Great Recession as states once again chart a course towards recovery. NCSL tracked state fiscal actions at the time through databases and our State Tax Action reports.

Budget Cuts

States are limited in their ability to provide fiscal stimulus during economic downtimes. Unlike the federal government, most states have balanced budget requirements and cannot engage in deficit spending. While the federal government is responding to the current crisis by increasing spending to stimulate the economy, states will likely be forced to reduce spending to ensure it does not outpace revenue.

Twenty-nine states had to resort to across-the-board budget cuts in fiscal years 2010 and 2011. Spending cuts will be more difficult in 2020 than they were during the last downturn. According to the Pew Charitable Trusts, “spending levels in many areas that were cut to free up cash during the Great Recession are still not back to pre-2008 levels. For example, adjusting for inflation, state funding for higher education is still down 13 percent from pre-recession levels, and infrastructure spending is at its lowest point relative to gross domestic product in 50 years.” State government employment has been greatly reduced since the last downturn, too. There were 132,000 fewer state government employees in 2018 than there were in 2008.

Rainy Day Funds

The majority of states had to turn to rainy day funds or other special funds to make up for significant budget gaps during the Great Recession. As the National Association of State Budget Officers has noted, these funds were not sufficient to maintain budget stability and most states burned through their reserves in a few months. The good news for states is that many enter the current downturn with generally strong reserve levels and have implemented a number of reforms over the last several years. Overall rainy day fund levels have never been higher.

Use of Temporary Taxes, Targeting High-Income Taxpayers

States tend to increase taxes in economic downtimes to boost revenues and meet required spending amounts. In 2009, in response to the Great Recession, 24 states raised taxes by more than 1% of all revenues, and only one state cut them. Twelve more states raised taxes significantly in 2010, while only one cut them.

The personal income tax was a go-to revenue-raising tool for many states, with several targeting higher-earners. Between FY 2010 and FY 2010, at least 10 states increased personal income tax rates, with eight of them targeting the increases towards those with high or relatively high incomes. In many cases, these rate increases were temporary. Several states also increased taxes on capital gains and repealed or reduced available deductions, as well. It may be harder for states to raise rates on high-earners this time around, as the federal Tax Cuts and Jobs Act of 2017 eliminated the deduction for state and local taxes paid, and thus increased the relative burden of state income taxes on wealthier taxpayers.

Broadening the Sales Tax Base

At least 19 states turned to the sales tax to plug budget gaps after the last recession. A few states raised sales tax rates, but most state actions involved broadening the base, eliminating exemptions and vendor compensation fees, and pursuing revenues lost to internet sales. Similar revenue-raising opportunities exist for state sales taxes in 2020 and the current fiscal crisis may accelerate sales tax modernization efforts. Much has been made of the fact that state sales taxes generally fail to tax consumption of services and digital products. Several states have targeted these potential revenue sources in recent years. Fortunately, most states are now able to collect sales tax on internet sales made by remote retailers, which seem likely to spike as a percentage of overal sales tax revenues in the midst of social distancing requirements.

Business Tax Reform, Elimination of Deductions and Exemptions

Between FY 2010 and FY 2012, several states turned to businesses taxes for revenue. A few states, including North Carolina, Nevada, Oregon and Delaware increased business taxes. Several states broadened the base by modifying deductions for net operating losses and reduced or deferred tax credits. A bit later in the recovery, states began seeking business tax relief/reform measures to spur economic growth. In 2011, 20 states cut business taxes or expanded tax credit programs.

Sin and Other Excise Taxes

Excise taxes and tourism taxes were also used to help make up shortfalls during the last recession. Between FY 2010 and FY 2012, at least 8 states enacted measures to expand casino gambling or lottery offerings to generate more revenue, four states increased rental car taxes, five states increased motor fuel taxes during this time, and twelve raised significant amounts of revenue by increasing fees tied to licensing, registration, and permitting.

Sin taxes proved to be a popular source of revenue as well. At least 25 states raised taxes on alcohol or tobacco products between FY 2010 and FY 2012 (21 raised tobacco taxes, 11 raised alcohol taxes). Again, in some cases, the new taxes or surcharges were applied only temporarily.  Emerging revenue sources like marijuana and electronic cigarettes will likely attract increased attention from states that have not yet chosen to legalize and tax these products.

The current fiscal picture for states is still highly uncertain and changing quickly. NCSL is here to help. We are tracking developments and will help states coordinate with each other to develop the most informed and effective solutions possible. 

May Fiscal Brief: State Reliance on Particular Taxes Provides a Peek at Revenue Vulnerability

By Mandy Rafool

Fiscal BriefAs the United States confronts COVID-19 with stay-home orders, economic activity has come to a screeching halt. The result, while beneficial to human health, will be devastating to state fiscal health. Job losses and reduced daily commerce have already drastically reduced state revenue streams, and the longer the economy stalls, the greater the revenue loss. The problem is particularly acute in states that rely heavily on sales and income taxes, which it turns out, is most states.

Nationally, nearly 70% of state revenues come from taxes on personal income and general sales. Personal income collections make up a larger share at 38%, but tax structures vary greatly across the states, with several states relying more heavily on one of these tax sources than others. State property taxes, severance taxes, or other taxes on corporations that in national aggregate appear insignificant, make up larger shares of tax revenue for some individual states.

Individual Income
Corporation Net Income
General Sales and Gross Receipts
Selective Sales and Gross Receipts
License
Property
Other
 

Compared to other states, Oregon relied most heavily on personal income taxes in fiscal year 2018, with 70% of its total tax collections coming from that category. However, Oregon along wtih four other states--Alaska, Delaware, Montana and New Hampshire--does not have a general sales tax.

Likewise, the seven states--Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming--that don't levy personal income taxes--rely heavily on sales taxes. Florida generates 64% and Texas generates approximately 60% of total revenues from sales tax.

States also levy corporate income taxes, selective sales taxes on goods such as cigarettes and alcohol, statewide property taxes, license taxes and more, including severance taxes, estate taxes and real estate transfer taxes among others. These taxes make up a small share of state revenues in most states but are a significant revenue share in a handful of states. For example, property taxes account for just 1.6% nationally, but they account for 33% of tax revenue in Vermont.

Severance taxes, which are levied on the extraction of natural resources make up a more significant share of revenue in many resource-rich states such as Alaska and Wyoming. For example, severance tax collections make up over 56% of Alaska's total tax collections and nearly 30% in Wyoming.

Jurisdiction

Individual Income

Corporation Net Income

General Sales and Gross Receipts

Selective Sales and Gross Receipts

License

Property

Other

United States Average

38.0%

4.7%

30.8%

16.0%

5.6%

1.9%

3.0%

Alabama

35.4%

5.2%

25.2%

24.9%

4.7%

3.7%

0.9%

Alaska

0.0%

12.0%

0.0%

15.4%

8.5%

7.4%

56.7%

Arizona

27.9%

2.3%

47.2%

12.4%

3.0%

6.4%

0.8%

Arkansas

29.1%

4.0%

35.5%

13.6%

4.2%

12.3%

1.3%

California

54.4%

7.1%

20.7%

10.1%

6.0%

1.6%

0.1%

Colorado

50.7%

4.5%

21.7%

16.9%

5.5%

0.0%

0.7%

Connecticut

51.0%

4.1%

23.7%

16.6%

2.5%

0.0%

2.1%

Delaware

39.2%

6.0%

0.0%

13.9%

37.3%

0.0%

3.6%

Florida

0.0%

5.3%

64.3%

19.4%

4.6%

0.0%

6.4%

Georgia

49.3%

4.3%

25.2%

13.5%

3.0%

3.9%

0.7%

Hawaii

31.5%

1.9%

45.7%

15.6%

3.6%

0.0%

1.7%

Idaho

37.9%

5.0%

36.9%

12.5%

7.6%

0.0%

0.2%

Illinois

38.4%

6.5%

28.4%

18.5%

6.9%

0.1%

1.2%

Indiana

30.0%

3.6%

40.2%

22.3%

3.9%

0.1%

0.0%

Iowa

38.6%

4.4%

32.5%

13.9%

9.5%

0.0%

1.0%

Kansas

35.8%

4.6%

34.6%

12.5%

4.5%

7.5%

0.5%

Kentucky

37.3%

4.2%

29.9%

17.5%

4.1%

5.5%

1.4%

Louisiana

28.6%

3.2%

37.4%

23.0%

3.5%

0.5%

3.8%

Maine

36.4%

4.2%

34.7%

16.4%

6.4%

0.9%

1.1%

Maryland

42.4%

4.6%

21.0%

21.6%

3.8%

3.6%

2.9%

Massachusetts

54.9%

8.1%

21.9%

8.5%

3.9%

0.0%

2.6%

Michigan

33.6%

3.6%

32.3%

15.9%

6.4%

7.1%

1.2%

Minnesota

44.5%

5.1%

21.8%

17.9%

5.5%

3.1%

2.1%

Mississippi

23.5%

5.5%

45.1%

18.7%

6.2%

0.4%

0.6%

Missouri

50.0%

2.6%

28.3%

14.2%

4.6%

0.3%

0.1%

Montana

44.2%

6.0%

0.0%

21.5%

12.0%

10.0%

6.4%

Nebraska

43.8%

5.8%

35.2%

11.2%

3.6%

0.0%

0.4%

Nevada

0.0%

0.0%

55.6%

24.4%

7.2%

3.5%

9.3%

New Hampshire

3.6%

27.0%

0.0%

35.1%

14.9%

14.0%

5.3%

New Jersey

42.5%

6.3%

29.6%

14.0%

4.4%

0.0%

3.2%

New Mexico

22.1%

1.6%

36.6%

14.3%

5.6%

1.5%

18.4%

New York

59.6%

4.1%

16.7%

13.1%

2.0%

0.0%

4.5%

North Carolina

45.3%

2.7%

28.8%

15.1%

7.9%

0.0%

0.3%

North Dakota

8.7%

2.6%

21.7%

11.5%

5.1%

0.1%

50.3%

Ohio

29.9%

0.0%

41.7%

20.4%

7.8%

0.0%

0.2%

Oklahoma

36.5%

2.5%

28.5%

14.0%

11.0%

0.0%

7.5%

Oregon

70.2%

6.4%

0.0%

13.1%

8.6%

0.2%

1.5%

Pennsylvania

31.4%

6.1%

26.8%

24.8%

6.7%

0.1%

4.0%

Rhode Island

38.2%

3.4%

30.1%

18.2%

2.9%

0.1%

7.1%

South Carolina

42.0%

4.0%

31.3%

15.6%

5.5%

0.4%

1.2%

South Dakota

0.0%

1.7%

57.6%

25.1%

15.2%

0.0%

0.4%

Tennessee

1.7%

11.5%

52.3%

20.1%

12.4%

0.0%

1.9%

Texas

0.0%

0.0%

59.9%

25.4%

6.0%

0.0%

8.7%

Utah

49.7%

5.0%

28.0%

12.7%

4.2%

0.0%

0.5%

Vermont

24.9%

3.4%

12.1%

21.2%

3.8%

32.5%

2.0%

Virginia

60.1%

3.7%

17.4%

12.8%

3.7%

0.1%

2.2%

Washington

0.0%

0.0%

58.9%

17.6%

7.8%

10.4%

5.3%

West Virginia

36.0%

2.0%

24.2%

26.2%

3.6%

0.1%

7.8%

Wisconsin

43.5%

4.9%

29.3%

14.7%

6.3%

0.9%

0.5%

Wyoming

0.0%

0.0%

37.5%

9.4%

10.2%

13.6%

29.2%

Source: US Census, FY 2018 tax collections

June Fiscal Brief: Healthy Rainy Day Funds Not Immune From Ill Effects of Coronavirus

ncsl fiscal brief logoBy Erica MacKeller

Heading into 2020, state budget reserves were as healthy as they had ever been, averaging between 8% and 12% for most states. Yet faced with the coronavirus pandemic and massive revenue reductions from the economic shutdown, those seemingly plentiful rainy day reserves amount to a mere drop in the bucket.

The concept of a rainy day fund is straightforward: Save money when times are good to use when the economy takes a downturn.

Rainy day funds are viewed as an important component of state fiscal health. However, many states also carry forward excess general funds and other funds from year to year that can help address budget shortfalls. These funds, combined with rainy day accounts, make up a state’s year-end balance, which is a better indicator of overall state fiscal health.

Lessons of the Great Recession

During the Great Recession, states used a combination of budget cuts, revenue enhancements and budget reserve funds to close significant budget gaps. As the effects of the recession continued, year-end balances dropped to a low of about 4.8% of state general fund spending in FY 2009.

Rainy Day Funds and Year-End Balances as a Percentage of General Fund Spending

rainy day funds coronavirus chart

While the economic expansion that occurred after the Great Recession was characterized by slow but steady growth, states recognized the importance of their rainy day fund safety nets and took steps to replenish those funds. Since FY 2013, year-end balances have on average hovered between 10% and 12% of general fund spending. This will provide states some flexibility as they grapple with the catastrophic revenue fallout of the COVID-19 pandemic.

State Year-End Balances as a Percentage of State General Fund Spending

state year-end balances chart

Fund volatility

However, rainy day funds and year-end balance amounts vary greatly by state, and no state likely has enough to cover the cost of the COVID-19 pandemic and resulting economic decline.

States with the largest year-end balances as a percentage of their general fund spending tend to be states heavily reliant on volatile severance tax revenues. Alaska had a year-end balance of about 40% of general fund spending in FY 2019, North Dakota’s was 22% and New Mexico’s was nearly 20%. Wyoming has the largest year-end balance as a percentage of its general fund spending at 109%. These states, however, are also dealing with low demand for oil in addition to revenue losses related to COVID-19. In some cases, oil prices per barrel are half of what states budgeted, so even states with the most robust rainy day funds may find them falling short.

While many states reliant on severance taxes tend to have the largest balances relative to their general funds, a number of other states build up above-average year-end balances. These balances will help many states cover short-term costs as most state economies are shut down, but they may not be nearly enough to address the longer-term effects of the expected economic decline.

Will Rainy Day Funds be Enough to Weather the Storm?

There is a lot of uncertainty around the magnitude of revenue losses states will experience for the remainder of FY 2020 and into FY 2021. Revenue estimators do not know what the reopening of businesses will fully look like, or when states will welcome tourists back for conventions, sporting events and other large gatherings that generate significant revenue. But early estimates show states could face revenue losses upwards of 20% between the beginning of March and the end of December, nearly double the average state year-end balance.

Those revenue losses are only part of the equation. As we saw during the Great Recession, the demand for health and social service programs increases during a recession, squeezing state budgets. States have already been working to expand access to unemployment benefits, food assistance programs and health care. They have also been providing grants to small businesses and other assistance to companies affected by the shutdown. These are important steps to protect citizens and businesses during an unprecedented time, but these actions also increase state budget shortfalls.

States also face challenges relating to the use of their rainy day fund reserves. Many states cannot access their reserve funds without an act of the legislature. That may not be a challenge during normal years, but these are extraordinary times.

Several legislatures adjourned or suspended operations due to the COVID-19 pandemic. Other states have a cap on the amount that can be withdrawn in a fiscal year, or requirements that amounts withdrawn be replaced within the current or subsequent fiscal year, which could prove difficult if state revenues continue to decline. NCSL has more information on state rainy day fund deposit and withdrawal requirements in our Rainy Day Fund Structures report.

State lawmakers wisely heeded the call to prepare themselves for another economic downturn after the last recession, but none could have predicted a decline with such immediate and drastic effects on state finances. Rainy day fund and other state reserves may help states soften the blow, but states will still face difficult budget choices in the coming months, and perhaps years.

 

Budget Stabilization Funds: FY 2018, 2019, 2020 | Millions of Dollars

Jurisdiction

FY 2018

FY 2019 (estimated)

FY 2020 (projected)

Alabama

$609.4

$614.2

$666.4

Alaska 

$2,396.8

$2,274.4

$2,484.4

Arizona

$457.8

$713.4

$1,018.8

Arkansas 

$37.0

$13.1

$58.9

California

$10,807.0

$14,358.0

$16,516.0

Colorado

N/A

N/A

N/A

Connecticut

$1,185.3

$2,278.3

$2,707.8

Delaware

$231.6

$240.4

$252.4

District of Columbia

$1,335.5

$1,337.9

$1,339.7

Florida

$1,416.5

$1,483.0

$1,574.2

Georgia

$2,556.6

$2,556.6

N/R

Hawaii

$374.6

$380.6

$391.7

Idaho

$413.5

$373.2

$373.2

Illinois

$0.0

$0.0

$0.0

Indiana 

$507.7

$519.1

$525.2

Iowa 

$620.3

$762.1

$783.9

Kansas

$0.0

$0.0

$0.0

Kentucky

$93.8

$129.1

$306.2

Louisiana 

$321.1

$405.3

$438.0

Maine

$272.9

$297.2

$297.2

Maryland

$856.8

$882.3

$1,206.6

Massachusetts

$2,001.3

$3,424.4

$3,990.2

Michigan

$1,006.0

$1,155.7

$1,218.3

Minnesota

$2,048.2

$2,424.7

$2,424.7

Mississippi

$295.3

$349.7

$549.6

Missouri 

$616.2

$651.3

$658.8

Montana

$0.0

$60.7

$72.8

Nebraska

$339.9

$333.5

$377.1

Nevada

$179.9

$331.3

$375.8

New Hampshire

$110.0

$115.0

$115.0

New Jersey

$0.0

$401.4

$401.4

New Mexico

$526.8

$968.1

$1,473.8

New York

$540.0

$790.0

$1,218.0

North Carolina

$1,254.3

$1,254.3

$1,169.3

North Dakota

$113.4

$399.9

$479.4

Ohio

$2,034.1

$2,691.6

$2,691.6

Oklahoma

$70.1

$451.6

$806.2

Oregon

N/R

N/R

N/R

Pennsylvania

$22.8

$340.1

$518.3

Puerto Rico

N/R

N/R

N/R

Rhode Island

$198.5

$203.6

$210.2

South Carolina

N/R

N/R

N/R

South Dakota

$159.5

$169.8

$189.1

Tennessee

$800.0

$875.0

$1,100.0

Texas

$11,043.4

$6,912.5

$8,131.7

USVI

N/R

N/R

N/R

Utah

$578.2

$663.5

$757.4

Vermont

$123.3

$224.2

$225.9

Virginia

$283.3

$283.3

$643.8

Washington

$1,369.4

$1,622.1

$1,893.2

West Virginia

N/R

N/R

N/R

Wisconsin

$320.1

$617.7

$630.0

Wyoming

$1,642.0

$1,654.8

$1,667.6

Total

$52,170.2

$58,988.0

$64,929.7

Source: NCSL survey of legislative fiscal offices, 2019.

 

State Year-End Balances as a Percentage of State General Fund Expenditures

Jurisdiction

FY 2019

FY 2020 (projected)

Alabama ETF

9.2%

6.7%

Alabama GF

45.9%

46.1%

Alaska 

39.1%

44.5%

Arizona

13.9%

9.1%

Arkansas 

3.3%

1.0%

California

13.8%

12.1%

Colorado

9.3%

7.8%

Connecticut

17.7%

16.2%

Delaware

13.8%

9.1%

District of Columbia

42.6%

36.6%

Florida

9.1%

7.7%

Georgia

11.0%

0.0%

Hawaii

11.9%

10.9%

Idaho

13.4%

14.0%

Illinois

1.2%

1.5%

Indiana 

8.2%

8.0%

Iowa 

12.2%

13.9%

Kansas

12.2%

7.1%

Kentucky

1.1%

2.7%

Louisiana 

4.2%

4.5%

Maine

11.8%

10.4%

Maryland

8.9%

6.7%

Massachusetts

9.3%

9.0%

Michigan ETF

0.4%

0.6%

Michigan GF

17.2%

18.5%

Minnesota

13.1%

10.8%

Mississippi

6.3%

9.6%

Missouri 

13.6%

8.1%

Montana

10.6%

11.9%

Nebraska

13.9%

8.2%

Nevada

13.2%

15.2%

New Hampshire

20.9%

6.0%

New Jersey

4.4%

3.3%

New Mexico

19.2%

26.4%

New York

10.6%

9.1%

North Carolina

12.5%

14.0%

North Dakota

20.6%

22.5%

Ohio

18.3%

19.2%

Oklahoma

7.3%

12.1%

Oregon

N/R

N/R

Pennsylvania

1.0%

2.0%

Puerto Rico

N/R

N/R

Rhode Island

5.8%

5.2%

South Carolina

N/R

N/R

South Dakota

11.4%

11.4%

Tennessee

11.2%

7.1%

Texas

18.5%

13.7%

USVI

N/R

N/R

Utah EF

2.1%

0.9%

Utah GF

33.8%

30.2%

Vermont

14.0%

14.9%

Virginia

2.4%

2.9%

Washington

14.9%

13.8%

West Virginia

N/R

N/R

Wisconsin

9.2%

7.9%

Wyoming BRA

N/R

N/R

Wyoming GF

108.1%

109.0%

Average

11.4%

10.0%

Source: NCSL survey of Legislative Fiscal Offices, summer 2019

July Fiscal Brief: Enacting State Budgets

ncsl fiscal brief logo

By Erica MacKeller

State lawmakers consider all sorts of laws during a typical legislative session, but the only task required of them is to complete a balanced state budget. Enacting a state budget and determining policy priorities are never easy, even when state revenues are healthy. This year was particularly challenging because the coronavirus pandemic interrupted the budget process and caused revenues to plummet.

State Budget Requirements

State budgets are not all the same. For some states, it’s an annual spending plan approved each year while for others, it’s a biennial budget covering two fiscal years. One thing they all have in common is that they must be balanced by the start of the new fiscal year, which begins July 1 in all but four states (Alabama, Michigan, New York and Texas).

Every state but Vermont has a balanced budget requirement, though Vermont traditionally also balances its budget. Balanced budget requirements vary by state in terms of stringency and at which point in the process the budget must be balanced.  

In the aftermath of the Great Recession, balancing the budget on time became a challenge for some states. And with many states facing plummeting revenue declines in the wake of the COVID-19 pandemic, states may face difficult budget decisions and confront late state budgets.

What happens when a budget is not enacted on time? It depends on the state.

Late State Budgets

In many cases, a government shutdown occurs if a new budget is not in place. New Jersey’s government shut down for three days in 2017 leading up to the Independence Day holiday, closing state beaches and other tourist attractions during a busy vacation week. Minnesota experienced a particularly disruptive 20-day shutdown in 2011, which furloughed 19,000 state workers and closed state parks at the height of the summer travel season. Workers deemed essential to public health and safety are largely exempt from furloughs when states experience shutdowns.

In some states, such as Illinois and Pennsylvania, court cases have ensured that at least some government services continue, resulting in a partial shutdown. Illinois currently holds the record for the longest budget stalemate. The state failed to enact a budget for FY 2016 or FY 2017, though disruptions were minimal for the average citizen because of court rulings and stopgap funding mechanisms.

Three states, North Carolina, Rhode Island and Wisconsin, have provisions in place to automatically continue funding at the previous year’s spending levels until an agreement on a new budget is reached.

Budgeting in 2020

The COVID-19 pandemic created new challenges to passing a budget this year. Several states were forced to suspend sessions in the middle of budget negotiations, and it was unclear whether a budget deal would be reached before the start of the fiscal year. Several states chose to enact stopgap spending plans, or temporary budgets, anticipating special sessions this fall when states will have more accurate revenue forecasts. These states technically have late state budgets, but there will be no disruption in state services. However, state statutes governing the budget process vary greatly from states to state, and stopgap spending was not an option in all states.

Louisiana, for example, had just begun its budget process when the legislature was forced to postpone its session. The state’s constitution does not allow funding to continue into the next fiscal year without a complete budget, so lawmakers were unable to consider a short-term spending plan. The state scrambled to bring legislators and staff safely back to the capital to complete a budget before the July 1 deadline. 

Perhaps the most interesting method to avoid a late state budget occurred in New Jersey, which extended the FY 2020 fiscal year. The state now has until Oct. 1 to complete a full FY 2021 budget.

There are technically several late state budgets as states move into FY 2021, but there will be no immediate government shutdowns. However, states are not out of the woods yet. Many states will be debating spending priorities as temporary spending plans expire later this summer, so it remains to be seen whether there are more disruptions in the budget process.