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Logo for Special Series: State Budget Watch

States Grappling With Hit to Tax Collections

UPDATED
June 30, 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 current fiscal year (which ends on June 30 in most states) and about 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 $2.4 billion (11 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 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

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
2021 $206 million 3 percent

California
2020 $9.7 billion 7 percent

California
2021 $26 billion–$32.2 billion 17–21 percent

Colorado
2020 $1 billion 8 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 $324 million 7 percent

Delaware
2021 $200 million 4 percent

Delaware
2022 $281 million 6 percent

Hawaiʻi
2020 $792 million 11 percent

Hawaiʻi
2021 $1.9 billion 24 percent

Hawaiʻi
2022 $1.4 billion 18 percent

Illinois
2020 $2.7 billion 7 percent

Illinois
2021 $7.4 billion 19 percent

Idaho
2021 $349–$585 million 9–14 percent

Iowa
2020 $150 million 2 percent

Iowa
2021 $360 million 4 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 $718 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

Montana
2021 $380 million 15 percent

Nevada
2020 $504–$616 million 11–14 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 $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

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 $3.6 billion 15 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 $643 million 6 percent

Tennessee
2020 $654 million 5 percent

Tennessee
2021 $1.4 billion 10 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
2020 $1 billion 4 percent

Virginia
2021 $1–2 billion 4–9 percent

Washington
2021 $1.1 billion 4 percent

Washington
2022 $3.4 billion 13 percent

Washington*
2023 $4.3 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 $79–$152 million 7–13 percent

Wyoming
2021 $178–$280 million 16–25 percent

Wyoming
2022 $137 million–$277 million 12–24 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 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

Hawaiʻi
Council on Revenues May 29

Illinois
Office of Management and Budget April 15

Idaho
Division of Financial Management May 13

Iowa
Revenue Estimating Conference May 29

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

Montana
Legislative Fiscal Division June 23 FY20 estimate is unchanged from pre-COVID estimate

Nevada
Office of Finance/Legislative Counsel Bureau May 13

New Hampshire
House Ways and Means Committee June 1

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

Ohio
Office of Budget and Management June 10

Oklahoma
Board of Equalization April 20

Oregon
Office of Economic Analysis May 20 FY22 estimate for 2021-23 biennium

Puerto Rico
Financial Oversight and Management Board June 11

Rhode Island
Revenue Estimating Conference May 8

South Carolina
Board of Economic Advisors April 9

Tennessee
Department of Finance and Administration June 3

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
Economic and Revenue Forecast Council June 17 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 Based on (unposted) April 15 letter from Gov. Tony Evers to President Trump

Wyoming
Consensus Revenue Estimating Group May 27