You are here

Logo for Special Series: State Budget Watch

States Grappling With Hit to Tax Collections

UPDATED
June 2, 2020
Space

"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 weeks. 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 about 15 percent in the current fiscal year (which ends on June 30 in most states) and more than 25 percent in 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 only on data available before the crisis.)

States must shortly adopt budgets that will extend until July 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.

Even the initial projections now available make clear that states face an immediate crisis in their current fiscal years. To balance their budgets — as they must — states will need to make cuts or find enough revenue to close these shortfalls in roughly the next ten weeks, an extremely short period to find such large amounts of revenue. For example, for the rest of this fiscal year:

  • Kansas estimates an $827 million drop in revenues.
  • Arizona expects revenues to drop by $1.4 billon.
  • Arkansas expects $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.

Early state estimates show that revenues for the next fiscal year, which begins on July 1 for most states, could fall as much as or more than they did in the worst year of the Great Recession. 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, will result in a deficit equal to 37 percent of the general fund budget — more than three and half times the balance in the state’s substantial rainy day fund.
  • New York’s tax revenues will fall by $12 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 $3.2 billion in 2021 and $2.4 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 $815 million decline in revenues in the coming fiscal year, and New Mexico could see a $1.5 to $2 billion drop.

States will first draw 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.

Among the reports of the cuts to come, Ohio’s governor has asked state agencies to prepare estimates of how to cut their budgets by 20 percent for next year and has announced cuts totaling $775 million for this year, mainly targeting education and Medicaid, New Jersey’s governor has proposed $1 billion in cuts, and state agencies in Georgia have been asked to cut $3.6 billion (14 percent) from their budgets. 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 Revenues
State Fiscal Year Decline Decline as percent of pre-COVID-19 revenue projections
Alaska 2020 $612 million 11 percent
Alaska 2021 $815 million 15 percent
Arizona 2020 $1.4 billion 12 percent
Arizona 2021 $758 million 6 percent
Arizona 2022 $805 million 7 percent
Arkansas 2020 $353 million 6 percent
Arkansas 2021 $206 million 3 percent
California 2020 $9.7 billion 7 percent
California 2021 $26 billion to $32.2 billion 16 - 21 percent
Colorado 2020 $1.3 billion 10 percent
Colorado 2021 $3.2 billion 24 percent
Colorado 2022 $2.4 billion 17 percent
Connecticut 2020 $942 million 5 percent
Connecticut 2021 $2.2 billion 11 percent
Connecticut 2022 $2.3 billion 12 percent
Delaware 2020 $324 7 percent
Delaware 2021 $200 million 4 percent
Delaware 2022 $281 million 6 percent
Hawaii 2020 $790 million 11 percent
Hawaii 2021 $1.9 billion 24 percent
Hawaii 2022 $1.4 billion 18 percent
Illinois 2020 $2.7 billion 7 percent
Illinois 2021 $7.4 billion 19 percent
Kansas 2020 $827 million 11 percent
Kansas 2021 $446 million 6 percent
Kentucky 2020 $447–$624 million 4–5 percent
Kentucky half year* 2021 $700 million–$1.1 billion 11–17 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* 2021 $3.6 billion 7 percent
Mississippi 2020 $864 million 14 percent
Mississippi 2021 $367 million 6 percent
Missouri 2021 $1 billion 10 percent
Nevada 2020 $504 to $616 million 11 – 14 percent
New Jersey 2020 $2.8 billion 7 percent
New Jersey 2021 $7.3 billion 18 percent
New Mexico 2020 $368 - $483 million 5 – 6 percent
New Mexico 2021 $1.8–$2.4 billion 22–30 percent
New Mexico 2022 $1.7–$2.5 billion 21–31 percent
New York* 2021 $12 billion 14 percent
New York* 2022 $16 billion 17 percent
North Carolina 2020 $1.6 billion 7 percent
North Carolina 2021 $2.6 billion 10 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 $3.6 billion 15 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 $643 million 6 percent
Utah 2020 $1.0 - $1.4 billion 13 – 18 percent
Utah 2021 $0 - $447 million 0 – 5 percent
Vermont* 2020 $48 million 3 percent
Vermont 2021 $266 million 17 percent
Virginia 2021 $1–2 billion 4–9 percent
Washington* 2021 $2.6 billion 10 percent
Washington* 2022 $4.0 billion 7 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 $79 - $152 million 7-8 percent
Wyoming 2021 $178 - $280 million 16 – 25 percent
Wyoming 2022 $137 million–$277 million 12–25 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 April 9  
Arkansas Department of Finance and Administration March 23  
California Department of Finance May 7  
Colorado Legislative Council May 12  
Connecticut Consensus Revenue Estimate April 30  
Delaware Economic and Financial Advisory Council May 21  
Hawaii Council on Revenues May 29  
Illinois Office of Management and Budget April 15  
Kansas Consensus Revenue Estimating Group April 20  
Kentucky Governor’s Office of Economic Analysis April 29 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 FY21 estimate for 2020-21 biennium
Mississippi State Economist May 26  
Missouri Governor, press report April 18  
Nevada Office of Finance/Legislative Counsel Bureau May 13  
New Jersey Treasury May 14  
New Mexico Consensus Revenue Estimating Group May 6  
New York Division of Budget April 7 Estimate for all funds (general fund plus other state funds)
North Carolina Fiscal Research Division May 22  
Oklahoma Board of Equalization April 20  
Oregon Office of Economic Analysis May 20 FY22 estimate for 2021-2023 biennium
Rhode Island Revenue Estimating Conference May 8  
South Carolina Board of Economic Advisors April 9  
Utah Appropriations Committee May 12  
Vermont Joint Fiscal Office April 28 FY20 includes $167 million in taxes deferred to FY21, which will be credited to FY20 when collected
Virginia Secretary of Finance, press report March 24  
Washington Office of Financial Management May 7 Estimate for total shortfall, not just revenue decline; FY21 estimate covers second year of current biennium, while FY22 estimate covers next full biennium (FY22-23)
Washington, D.C. Chief Financial Officer April 24  
West Virginia Revenue Secretary April 13  
Wisconsin Governor April 15  
Wyoming Consensus Revenue Estimating Group May 27