State tax revenue projections and shortfalls (2020-2021)

Documenting America's Path to Recovery: State budget policy

State budgets before the coronavirus pandemic

State debt per capita • Federal outlays to states • Proportion of state revenues from federal funds • Public pension funding • State unfunded public pension liabilities

State budgets after the coronavirus pandemic

Tax revenue projections and shortfalls • Summary of federal aid to states • State budgets and the coronavirus (COVID-19) pandemic, 2020-2021 • Government revenue in the 100 largest cities, 2017

Budget Policy

At the state government level, governors prepare a budget through a budget office housed in the state's executive branch and submit the budget to the state legislatures. Central to the budgeting process is projecting how much tax revenue the state expects to collect. In FY 2020, state tax revenues have fallen short of projections, and states’ FY 2021 budgets also show projected decreases in tax collections, primarily as a result of COVID-19 impacts that have reduced state and local tax receipts, decreased taxable individual income, business closures, and tax payment deferrals.

HIGHLIGHTS

The coronavirus pandemic impacted state revenue sources, including sales tax, personal and corporate income tax, and severance taxes from oil and gas production and property taxes.

Estimates of state budget shortfalls projected a 25% decline in fiscal year 2021.

States employed strategies such as employee furloughs and/or layoffs, hiring freezes, delaying discretionary spending and capital projects, general fund cuts to state agencies and departments, and drawing from reserves and rainy day funds in order to offset budget shortfalls.

State revenue projections

The following table from the National Conference of State Legislatures presents state tax revenue assumptions that have been released for fiscal years 2020 and 2021. Revenue assumptions vary by state due to each state's unique tax structure and economy, the timing of their budgeting cycles, which set of taxes they use for forecasting, and many other variables. Please use caution in making comparisons. For more details, see source reports.

Causes of state tax revenue declines

The projections indicate that the COVID-19 pandemic caused heavy losses across many revenue categories that states depend on to fund their budgets. These sources include sales and use taxes, personal and corporate income taxes, severance taxes from oil and gas production, and property taxes, among many others.

Another cause of steep reductions in state tax revenues is the decisions by state governments to defer payments of various taxes. For example, as COVID-19 cases increased sharply in March and states issued stay-at-home and lockdown orders, they also extended their deadlines for filing many tax payments (property taxes, sales and use taxes, and personal and corporate income taxes) that were due in March and April 2020 until June and July 2020.

The Center on Budget & Policy Priorities (CBPP) estimates that state budget shortfalls will reach almost 10% in the 2020 fiscal year (which ended on June 30 in most states), and more than 20% in fiscal year 2021. A report from the Tax Policy Center that compiled revenue projections from 27 states showed a 6% estimated decrease in revenues in fiscal year 2021 from personal income and sales taxes, the two largest sources of tax revenues for state governments. State executive and legislative branches have many ways to address revenue shortfalls brought on by the COVID-19 pandemic and economic disruption: employee furloughs and/or layoffs, hiring freezes, delaying discretionary spending and capital projects, general fund cuts to state agencies and departments, and tapping into reserves and rainy day funds.

External links

• Center on Budget & Policy Priorites (CBPP), “States Grappling With Hit to Tax Collections”
• National Association of State Budget Officers, "Fiscal Survey of the States - Overview, Spring 2020" (reflects state fiscal conditions before the COVID-19 pandemic and economic crisis)
• National Association of State Budget Officers, "State Fiscal Outlook: Pre- & Post-COVID-19" - an overview with “examples of how states are updating their revenue forecasts and managing their budgets in response to the COVID-19 pandemic and economic crisis”
• National Association of State Budget Officers, "State Revenue Forecasts"
• NBC News, "Unprecedented': States face hundreds of billions in lost revenue, NBC News finds"
• Northeastern University, "Budget processes, state: Annual procedures whereby state governors submit budgets for legislative review and disposition"
• Council of State Governments, "State Budget Processes: A Comparative Analysis"
• Rockefeller Institute of Government State University of New York, “State Tax Revenue Forecasting Accuracy"
• Tax Foundation, "State Tax Changes Effective July 1, 2020"