Vice President for State Fiscal Policy
President Trump and Senate Majority Leader Mitch McConnell argue that doing more to help states cope with COVID-19’s severe economic fallout would just “bail out” Democratic-led states, which they portray as fiscally wasteful. But, in reality, unemployment is rising sharply in all states, devastating their income and sales tax revenue. Both “red” and “blue” states will need more fiscal relief to avoid having to make deep budget cuts to meet their balanced-budget requirements, which would hurt families and communities while worsening the recession.
Since the pandemic and economic fallout began, officials in 16 states (including the District of Columbia) have re-estimated revenues for this fiscal year (which ends on June 30 in most states) and officials in 22 states and D.C. have done so for next year — and, in every case, revenues are falling, often by huge amounts. (See table.)
Republican-controlled Arizona and West Virginia project declines for the current fiscal year of 12 and 11 percent, respectively, while Maryland and Illinois — whose legislatures are controlled by Democrats — project declines of 15 and 7 percent. These are all large shortfalls and will require large spending cuts or tax increases, given that the declines have occurred almost entirely within the year’s last quarter, so those states and every other one will have little time to offset them.
|COVID-19 Pandemic Expected to Cause Sharp Revenue Drops in States|
|State||Amount||Percent of Pre-COVID-19 projections||Source||Date and Source|
|Preliminary Estimated General Fund Revenue Declines in Fiscal Year 2020|
|Alaska||$612 million||11 percent||Department of Revenue||April 6|
|Arizona||$1.4 billion||12 percent||Joint Legislative Budget Committee||April 9|
|Arkansas||$353 million||6 percent||Department of Finance and Administration||March 23|
|Colorado||$451 million||3 percent||University of Colorado||April 14|
|Connecticut||$942 million||5 percent||Consensus Revenue Estimate||April 30|
|Illinois||$2.7 billion||7 percent||Office of Management and Budget||April 15|
|Kansas||$827 million||11 percent||Consensus Revenue Estimating Group||April 20|
|Kentucky||$447–$624 million||4–5 percent||Governor’s Office of Economic Analysis||April 29|
|Maryland||$2.8 billion||15 percent||Comptroller||April 10|
|Massachusetts||$3.8–$4.5 billion||13–15 percent||Federal Reserve Bank of Boston||April 22|
|Michigan||$1–$3 billion||4–12 percent||Treasury, Budget Office, press report||March 30|
|Oklahoma||$447 million||7 percent||Board of Equalization||April 20|
|South Carolina||$507 million||5 percent||Board of Economic Advisors||April 9|
|Vermont*||$48 million||3 percent||Joint Fiscal Office||April 28|
|Washington, D.C.||$722 million||9 percent||Chief Financial Officer||April 24|
|West Virginia||$500 million||11 percent||Revenue Secretary||April 13|
|Preliminary Estimated General Fund Revenue Declines in Fiscal Year 2021|
|Alaska||$815 million||15 percent||Department of Revenue||April 6|
|Arizona||$758 million||6 percent||Joint Legislative Budget Committee||April 9|
|Arkansas||$206 million||3 percent||Department of Finance and Administration||April 2|
|Colorado||$2.4 billion||18 percent||University of Colorado||April 9|
|Connecticut||$2.2 billion||11 percent||Consensus Revenue Estimate||April 30|
|Delaware||$500 million||11 percent||Governor, press report||April 15|
|Hawaii official||$319 million||4 percent||Council on Revenues||March 11|
|Hawaii projected||$800 million–$2 billion||10–25 percent||University of Hawaii Economic Council||April 3|
|Illinois||$7.4 billion||19 percent||Office of Management and Budget||April 15|
|Kansas||$446 million||6 percent||Consensus Revenue Estimating Group||April 20|
|Kentucky half year*||$700 million–$1.1 billion||11–17 percent||Governor’s Office of Economic Analysis||April 29|
|Massachusetts||$4.2–$7.2 billion||14–23 percent||Federal Reserve Bank of Boston||April 22|
|Missouri||$1 billion||10 percent||Governor, press report||April 18|
|Michigan||$1–$4 billion||4–16 percent||Treasury and Budget Office, press report||March 30|
|Minnesota*||$1.5–$3 billion||5–9 percent||State Economist, press report||April 7|
|New Mexico||$1.5–$2 billion||20–27 percent||Senate Finance Committee, press report||March 31|
|New York*||$12 billion||14 percent||Division of Budget||April 7|
|Oklahoma||$1.4 billion||16 percent||Board of Equalization||April 20|
|South Carolina||$643 million||6 percent||Board of Economic Advisors||April 9|
|Vermont||$266 million||17 percent||Joint Fiscal Office||April 28|
|Virginia||$1–2 billion||4–9 percent||Secretary of Finance, press report||March 24|
|Washington, D.C.||$774 million||9 percent||Chief Financial Officer||April 24|
|Wisconsin||$2 billion||10 percent||Governor||April 15|
|Preliminary Estimated General Fund Revenue Declines in Fiscal Year 2022|
|Arizona||$805 million||7 percent||Joint Legislative Budget Committee||April 9|
|Colorado||$4 billion||29 percent||University of Colorado||April 9|
|Connecticut||$2.3 billion||12 percent||Consensus Revenue Estimate||April 30|
|Hawaii||$181 million||2 percent||Council on Revenues||March 11|
|New York*||$16 billion||17 percent||Division of Budget||April 7|
|Washington, D.C.||$606 million||7 percent||Chief Financial Officer||April 24|
|Wyoming*||$556 million–$2.8 billion||12–62 percent||Legislative Service Office, press report||April 10|
Notes: Kentucky: Estimate is for the first two quarters of FY21; Minnesota: Estimate for remainder of 2020-21 biennium; Vermont: FY20 includes $167 million in taxes deferred to FY21, which will be credited to FY20 when collected; New York: All funds (General fund plus other state funds); Wyoming: Estimate for 2021-22 biennium.
Shortfalls in the upcoming fiscal year are also large across states controlled by Republicans and Democrats. On Friday, Georgia’s Republican governor and legislative leaders requested that schools and other agencies prepare for 14 percent cuts next year, which starts on July 1. Meanwhile, Democratic-controlled Illinois projects shortfalls of 19 percent next year.
Similarly, initial unemployment claims have exploded in every state as businesses have closed or scaled back, laying off workers. Claims in Georgia, Kentucky, Louisiana, Michigan, and Pennsylvania — all states with Republican-controlled legislatures — have surged particularly quickly, as have claims in Democratic-controlled Hawaii and Nevada.
State budget shortfalls could total $650 billion over three years, we estimate based on new economic projections from the nonpartisan Congressional Budget Office and updated projections from Goldman Sachs. After accounting for federal aid that policymakers have already enacted and state “rainy day” reserve funds, states still face about $510 billion in projected shortfalls. What’s more, this estimate doesn’t reflect the additional shortfalls that local governments, territories, and tribes face.
The wide range of state projections shown in the table reflects both the uncertainty states face and their varying methods of projecting shortfalls as they begin assessing the damage. (Some states are still using only pre-crisis data, for example.) As more states report projections, and as states that already have reported learn more about the damage done, the size and bipartisan nature of this budget crisis will become even clearer.
Given that state fiscal needs transcend party labels, it’s no surprise that the National Governors Association, co-chaired by Maryland’s Republican governor, Larry Hogan, and New York’s Democratic governor, Andrew Cuomo, is pushing strongly for adequate state fiscal relief. The two governors recently called for $500 billion in direct federal aid for states to replace lost revenue, as well as an increase in the federal matching rate for covering state Medicaid costs.