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Logo for Special Series: State Budget Watch

States Grappling With Hit to Tax Collections

UPDATED
August 24, 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. Most 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. 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 8.5 percent more in possible 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 10 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 $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 $361 million 2 percent

Connecticut*
2021 $2.6 billion 13 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

Florida
2021 $3.4 billion 10 percent

Florida
2022 $2 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 $37 million 1 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

Maine
2020 $28 million 1 percent

Maine
2021 $528 million 13 percent

Maine
2022 $434 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 $2.4–$3 billion 8–10 percent

Massachusetts
2021 $2.8–$9.6 billion 9- 31 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

Minnesota
2022 $2.5 billion 10 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 Hampshire
2020 $125–$199 million 5–8 percent

New Hampshire
2021 $229–$395 million 9–15 percent

New Jersey
2020 $2.8 billion 7 percent

New Jersey
2021 $7.3 billion 18 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 $800 million–$1.1 billion 8–11 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
2021 $182 million 11 percent

Vermont
2022 $104 million 6 percent

Virginia
2020 $234 million 1 percent

Virginia
2021 $1.3 billion 6 percent

Virginia
2022 $1.4 billion 6 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
Office of Policy and Management August 17 OPM presentation to the Appropriation Committee informational hearing. FY21 estimate is preliminary

Delaware
Economic and Financial Advisory Council June 20

Florida
Office of Economic & Demographic Analysis/Revenue Estimating Conference July / August 14

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 August 1

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

Maine
Revenue Forecasting Committee August 1

Maryland
Board of Revenue Estimates May 14

Massachusetts
Federal Reserve Bank of Boston July 9

Michigan
Consensus Revenue Agreement May 15

Minnesota
Management and Budget August 3

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 August 5 The two FY20 figures reflect reporting discrepancies between the Treasury Department and the federally-mandated Oversight Board. (Details in linked document.)

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 August 12

Virginia
Secretary of Finance August 18

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 April 15

May 26