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State Stats | Revenue Declines Put State Budgets in Turmoil

By Jackson Brainerd | July 15, 2020 | State Legislatures Magazine

The coronavirus pandemic combined with an energy crisis has had a dramatic impact on state revenues.

Decreased consumer spending and shuttered businesses have lowered sales tax revenues. Travel restrictions are cutting into lodging, car rental and other tourism-related taxes. Job losses and weak economic activity will reduce personal and corporate income tax collections.

 

States that rely on oil and gas severance taxes have been hit particularly hard. Of the states that have issued revisions to their revenue forecasts through the remainder of fiscal year 2020, 17 estimated shortfalls between 5% and 10% and six projected deficits between 10% and 20%. For FY 2021, seven states are projecting shortfalls from 5% and 10%, 14 are projecting declines between 10% and 20%, and four have estimated shortfalls greater than 20%.

 

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States lost $283 billion during the Great Recession, according to The Pew Charitable Trusts. Moody’s Analytics has estimated that the current recession will cost states up to $500 billion through FY 2022. Monthly revenue reports are beginning to reflect the seriousness of the losses. In Alabama, Georgia and Texas, for example, May tax collections were 10%, 12% and 13% lower than the year before, respectively.

Although states were able to build up ample reserves relative to historical norms before the virus struck, experts suggest most will burn through them by the end of the summer. Many states are considering or have already enacted spending cuts. Without an adequate federal aid package, economists on both sides of the aisle agree that the required cuts to state and local spending, which is around 17% of GDP, could cause an economic depression.

Jackson Brainerd is a senior policy specialist with the NCSL’s Fiscal Affairs Program.

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