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Logo for Special Series: State Budget Watch

States Grappling With Hit to Tax Collections

UPDATED
July 29, 2020
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"State revenues are declining precipitously and costs are rising sharply with many businesses closed and tens of millions of people newly unemployed."

COVID-19 has triggered a severe state budget crisis. While the full magnitude of this crisis is not yet clear, state revenues are declining precipitously and costs are rising sharply with many businesses closed and tens of millions of people newly unemployed. Due to the economy’s rapid decline, official state revenue projections generally do not yet fully reflect the unprecedented fiscal impact of the coronavirus pandemic. In many cases, states do not even know how much their revenues have already fallen, in part because they’ve extended deadlines for filing sales and income tax payments that otherwise would have been due in recent months. Executive and legislative fiscal offices in many states are analyzing new economic projections and producing initial estimates of the damage before state legislatures meet in regular or special sessions to address shortfalls. Some states have released initial or preliminary estimates. (See Table 1.)

Early Estimates Show Substantial Shortfalls for 2020, 2021

CBPP estimates that state budget shortfalls will ultimately reach almost 10 percent in the 2020 fiscal year (which ended on June 30 in most states) and over 20 percent in the current fiscal year (2021) based on recent economic projections.

States’ initial revenue projections give a first look at some of the damage the pandemic-induced downturn could cause to state budgets, though they do not show states’ increased costs from fighting the virus and from rising demand for state services. The wide range of projected revenue impacts reflects the uncertainty that states face, and the variety of methods states are using to begin to assess the damage. (In some cases, states are still relying on data available before the crisis.)

Most states have just begun a new fiscal year that will extend through June 2021. State revenue estimators are likely proceeding cautiously with these initial estimates, because of the consequences the revenue declines will have as states work to balance their budgets. Policymakers will want to be more certain about the scale of expected revenue drops before making large and harmful budget cuts. Current economic forecasts strongly suggest, however, that as the full scale of the downturn becomes clearer, revenue projections will fall further. In addition, gas taxes, vehicle registration fees, and other revenues that are deposited into separate funds (like transportation funds) are also declining.

States faced an immediate crisis in fiscal year 2020, which just ended. The full extent of the 2020 shortfalls won’t be known for a few weeks but the pandemic took a toll on revenues. To balance their budgets — as required — states made cuts, tapped reserves, or found enough revenue to close these shortfalls in just three months, an extremely short period to find such large amounts of revenue. For example, for the fiscal year that just ended:

  • Kansas estimated an $816 million drop in revenues.
  • Arizona expected revenues to drop by $864 million.
  • Arkansas expected $353 million less in revenue, with $193 million due to the income tax filing extension to July 15 and the remainder due to lower collections.

State estimates show that revenues for the current fiscal year, which began on July 1 for most states, could fall as much as or more than they did in the worst year of the Great Recession and remain depressed in following years. New York and Colorado, for example, project revenue drops of 17 percent or more if the recession is deep.

  • California expects revenues to decline by $32 billion in 2021 alone, according to the Department of Finance. The revenue declines in fiscal years 2020 and 2021, combined with COVID-19 costs and increased need for other state services, far outstripped the balance in the state’s substantial rainy day fund.
  • New York’s tax revenues will fall by $13 billion in 2021 and by $16 billion in 2022, according to the state’s Division of Budget.
  • Colorado’s revenues could drop by as much as $2.6 billion in 2021 and $1.7 billion in 2022, according to the Legislative Council.

Another group of states face a double threat. States with a high concentration of oil-related industries are seeing a decline in economic activity and tax collections due to plunging oil prices on top of COVID-19-related effects and the recession. For example, Alaska is projecting an $882 million decline in revenues in the current fiscal year, and New Mexico could see a $2 billion drop.

States are drawing on their rainy day funds and other budget reserves to address these shortfalls but, as in the last recession, those reserves will be far from adequate. And states will worsen the recession if they respond to this fiscal crisis by laying off employees, scaling back government contracts for businesses, and cutting public services and other forms of spending.

Damaging cuts have already begun. In Georgia, policymakers approved a 10 percent cut for 2021, including a nearly $1 billion cut for K-12 public schools and cuts to programs for children and adults with developmental disabilities, among others. Maryland’s governor has proposed nearly $1.5 billion in cuts; some have already taken effect, including large cuts to colleges and universities. Florida’s governor vetoed $1 billion in spending that lawmakers approved before the crisis and ordered agencies to look for up to 6 percent more in cuts. The state also cut money for community colleges and services related to behavioral health, including opioid and other substance use treatment services, crisis intervention services, and services for people experiencing homelessness.

Given the economy’s rapid decline and the extraordinary damage being done to state, tribal, and local budgets, federal policymakers will need to provide more help to states and families affected by the crisis.

Tracking Estimated State Revenue Shortfalls

We’ve collected the preliminary estimated revenue declines we’re aware of in the table below. We’ll update this list as states continue to revise their revenue estimates for the upcoming fiscal year. In all cases these are preliminary estimates that will be updated as more is known about the impact of the COVID-19 pandemic on the economy and tax collections.

TABLE 1
COVID-19 Pandemic Expected to Cause Sharp Revenue Drops in States
Preliminary Estimates of Declines in General Fund Tax Revenues
State Fiscal Year Decline Decline as percent of pre-COVID-19 revenue projections
Alaska 2020 $612 million 11 percent
Alaska 2021 $882 million 15 percent
Alaska 2022 $797 million 14 percent
Arizona 2020 $864 million 8 percent
Arizona 2021 $873 million 7 percent
Arizona 2022 $663 million 5 percent
Arkansas 2020 $353 million 6 percent
Arkansas 2020 $113 million 2 percent
Arkansas 2021 $206 million 3 percent
California 2020 $9.7 billion 7 percent
California 2021 $26 billion–$32.2 billion 17–21 percent
Colorado 2020 $968 million 7 percent
Colorado 2021 $2.6 billion 20 percent
Colorado 2022 $1.7 billion 12 percent
Connecticut 2020 $942 million 5 percent
Connecticut 2021 $2.2 billion 11 percent
Connecticut 2022 $2.3 billion 12 percent
Delaware 2020 $246 million 5 percent
Delaware 2021 $283 million 6 percent
Delaware 2022 $396 million 8 percent
Florida 2020 $1.9 billion 6 percent
Georgia* 2021 $2.5 billion 9 percent
Hawaiʻi 2020 $792 million 11 percent
Hawaiʻi 2021 $1.9 billion 24 percent
Hawaiʻi 2022 $1.4 billion 18 percent
Idaho 2021 $349–$585 million 9–14 percent
Illinois 2020 $2.7 billion 7 percent
Illinois 2021 $4.6 billion 12 percent
Indiana 2020 $1.4 billion 8 percent
Indiana* 2021 $2.0 billion 12 percent
Iowa 2020 $150 million 2 percent
Iowa 2021 $360 million 4 percent
Kansas 2020 $816 million 11 percent
Kansas 2021 $549 million 7 percent
Kentucky 2020 $585 million 5 percent
Kentucky half year* 2021 $718 million–$1.1 billion 12–19 percent
Louisiana 2020 $293 million 3 percent
Louisiana 2021 $970 million 10 percent
Maryland 2020 $925 million–$1.1 billion 5–6 percent
Maryland 2021 $2.1–$2.6 billion 11–14 percent
Maryland 2022 $2.6–$4.0 billion 13–20 percent
Massachusetts 2020 $3.8–$4.5 billion 13–15 percent
Massachusetts 2021 $4.2–$7.2 billion 14–23 percent
Michigan 2020 $3.2 billion 13 percent
Michigan 2021 $3 billion 12 percent
Michigan 2022 $2.1 billion 8 percent
Minnesota 2020 $610 million 3 percent
Minnesota 2021 $3 billion 12 percent
Mississippi 2020 $344 million 6 percent
Mississippi 2021 $275 million 5 percent
Missouri 2020 $864 million 9 percent
Missouri 2021 $1 billion 10 percent
Montana* 2021 $380 million 15 percent
Nevada 2020 $509 million 12 percent
Nevada 2021 $1.2 billion 26 percent
New Jersey 2020 $2.8 billion 7 percent
New Jersey 2021 $7.3 billion 18 percent
New Hampshire 2020 $125–$199 million 5–8 percent
New Hampshire 2021 $229–$395 million 9–15 percent
New Mexico 2020 $439 million 6 percent
New Mexico 2021 $2 billion 25 percent
New Mexico 2022 $1.7 billion 22 percent
New York* 2021 $13.3 billion 15 percent
New York* 2022 $16 billion 17 percent
North Carolina 2020 $1.6 billion 7 percent
North Carolina 2021 $2.6 billion 10 percent
Ohio 2021 $2.3 billion 9 percent
Oklahoma 2020 $447 million 7 percent
Oklahoma 2021 $1.4 billion 16 percent
Oregon 2020 $630 million 6 percent
Oregon 2021 $1.3 billion 12 percent
Oregon 2022 $1.7 billion 14 percent
Pennsylvania 2020 $3.5 billion 10 percent
Pennsylvania 2021 $1.2 billion 3 percent
Puerto Rico 2020 $900 million 8 percent
Rhode Island 2020 $281 million 7 percent
Rhode Island 2021 $516 million 12 percent
South Carolina 2020 $507 million 5 percent
South Carolina 2021 $702 million 7 percent
Tennessee 2020 $654 million 5 percent
Tennessee 2021 $1.4 billion 10 percent
Texas 2020 $4.4 billion 8 percent
Texas 2021 $8.8 billion 15 percent
Utah 2020 $93 million 1 percent
Utah 2021 $757 million 9 percent
Vermont* 2020 $41 million 3 percent
Vermont 2021 $218 million 14 percent
Virginia 2020 $236 million 1 percent
Virginia 2021 $1 billion 4 percent
Virginia 2022 $1 billion 4 percent
Washington 2020 $1.1 billion 4 percent
Washington 2021 $3.4 billion 13 percent
Washington 2022 $2.3 billion 8 percent
Washington, D.C. 2020 $722 million 9 percent
Washington, D.C. 2021 $774 million 9 percent
Washington, D.C. 2022 $606 million 7 percent
West Virginia 2020 $500 million 11 percent
Wisconsin* 2021 $2 billion 10 percent
Wyoming 2020 $109 million 9 percent
Wyoming 2021 $236 million 21 percent
Wyoming 2022 $213 million 19 percent

* See Notes in Table 2

TABLE 2
Sources and Notes
State Source Date and Source Notes
Alaska Department of Revenue April 6  
Arizona Joint Legislative Budget Committee June 19  
Arkansas Department of Finance and Administration April 2 & July 2  
California Department of Finance May 7  
Colorado Legislative Council May 12  
Connecticut Consensus Revenue Estimate April 30  
Delaware Economic and Financial Advisory Council June 20  
Florida Office of Economic & Demographic Analysis July  
Georgia Office of Planning June 30 Based on (unposted) communication with Governor’s Budget Office
Hawaiʻi Council on Revenues May 29  
Illinois Office of Management and Budget April 15  
Idaho Division of Financial Management May 13  
Indiana State Budget Committee June 19 and July 1 FY21 based on news report
Iowa Revenue Estimating Conference May 29  
Kansas Consensus Revenue Estimating Group April 20  
Kentucky Governor’s Office of Economic Analysis May 27 FY21 is estimate for just first two quarters
Louisiana Revenue Estimating Conference May 11  
Maryland Board of Revenue Estimates May 14  
Massachusetts Federal Reserve Bank of Boston April 22  
Michigan Consensus Revenue Agreement May 15  
Minnesota Management and Budget May 5  
Mississippi State Economist June 15  
Missouri Office of Administration/Governor, press report July 3 /April 18  
Montana Legislative Fiscal Division June 23 FY20 estimate is unchanged from pre-COVID estimate
Nevada Economic Forum/Governor June 10/July 6  
New Hampshire House Ways and Means Committee June 1  
New Jersey Treasury May 14  
New Mexico Consensus Revenue Estimating Group June 10  
New York Division of Budget April 7 Estimate for all funds (general fund plus other state funds)
North Carolina Fiscal Research Division May 22  
Ohio Office of Budget and Management June 10  
Oklahoma Board of Equalization April 20  
Oregon Office of Economic Analysis May 20  
Pennsylvania Independent Fiscal Office June 22  
Puerto Rico Financial Oversight and Management Board June 11  
Rhode Island Revenue Estimating Conference May 8  
South Carolina Board of Economic Advisors May 8  
Tennessee Department of Finance and Administration June 3  
Texas Comptroller July 20  
Utah Appropriations Committee June 17  
Vermont Joint Fiscal Office June 8 FY20 includes $167 million in taxes deferred to FY21, which will be credited to FY20 when collected
Virginia Governor/Secretary of Finance, press report July 10 /March 24  
Washington Economic and Revenue Forecast Council June 17  
Washington, D.C. Chief Financial Officer April 24  
West Virginia Revenue Secretary April 13  
Wisconsin Governor April 15 Based on (unposted) April 15 letter from Gov. Tony Evers to President Trump
Wyoming Consensus Revenue Estimating Group May 26