State revenues declined in fiscal 2020; their first drop in 9 years

States saw their revenue fall in fiscal 2020 after nine consecutive years of budget growth and those declines are expected to increase in fiscal 2021.

That’s the message from the National Association of State Budget Officers in its Fall Fiscal Survey of the States released Wednesday.

The survey found that the COVID-19 recession led many states to cut general fund expenditures, even as spending demands were on the rise.

For fiscal 2020 -- which ended June 30 for 45 of states -- general fund revenues declined an average of 2.9%. Thirty-five states reported general fund collections for fiscal 2020 from all sources came in lower than original budget projections.

Nineteen states reported making net budget reductions in the middle of fiscal 2020 due to a shortfall.

The enacted state budget for fiscal 2021 collectively showed a 1.1% decline in general fund spending, which is the first spending drop by the states since fiscal 2010 at the end of the Great Recession. That year states collectively reduced their spending by 5.7% on top of a 3.8% cut they enacted in fiscal 2009.

The steepest general fund spending cuts for fiscal 2021 are 11.4% in Texas, 11% in Colorado, 9.3% in Oklahoma, 8.9% in California, 8.5% in Wyoming, 7.5% in Georgia, 6.4% in New Hampshire, 6.3% in New Mexico, and 5.6% in Alaska and New York.

The projected 2021 spending decline does not yet reflect some of the 17 states that enacted two-year budgets in 2019 before the onset of the pandemic and have not yet made their spending adjustments.

The enacted fiscal 2021 budgets reduce general fund appropriations across program areas by $6.2 billion around the country compared to fiscal 2020. In contrast, before the onset of the pandemic, the governors had proposed $33.2 billion in spending increases for fiscal 2021.

“The pandemic’s impact has been uneven across states,” the report noted.

Senate Republicans resisted including direct federal aid to state and local governments in the $900 billion emergency coronavirus relief legislation that passed earlier this week because some states have continued to experience revenue increases despite the pandemic.

Kathryn White, NASBO director of budget process studies, acknowledged that the year-over-year revenue declines in fiscal 2020 were confined to 32 states, but she pointed out that every state faced higher costs because of the pandemic.

“The extent of the impact is really highly dependent on a state’s economy, tax structure, and other factors,” said White. “States that are particularly dependent on the tourism and leisure industries, the energy sector, and other areas that have been disproportionately affected by this recession are generally having larger impacts.”

NASBO said it remains uncertain how long it will take for state budgets to recover.

“After the Great Recession, even though revenues began to grow again in fiscal 2011, it took until fiscal 2013 for state general fund revenue to surpass its fiscal 2008 levels without adjusting for inflation,” the report said. “States did not see revenue fully restored to fiscal 2008 levels until fiscal 2018 in inflation-adjusted terms.”

Rainy day funds and total balances are expected to decline by a combined $33.3 billion in fiscal 2021 in 46 states from their record-high $121.6 billion prior to the pandemic. Four states were not included in that calculation.

NASBO said that usage of rainy day funds in fiscal 2021 is ongoing and the balances reported in its survey are based on states’ enacted budgets, including some that were enacted before the onset of the pandemic.

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