State revenues not hit as hard by pandemic as anticipated

State revenues experienced their steepest plunge in 25 years in the final quarter of the fiscal year ending June 30, 2020, according to a recent analysis by Pew. It also notes that while some of those revenues were expected to be recovered, nearly half of all states were still projecting revenue declines this fiscal year. The federal government’s decision to delay the April 15 tax deadline pushed tax payments into the first quarter of the current fiscal year, further straining many state budgets for fiscal year 2020. Gains made before the pandemic coupled with the federal stimulus payments helped states recover somewhat, but Pew found that at least 19 states were forced to pull back on spending and at least 15 tapped into their rainy day funds to balance the fiscal 2020 budgets.

Other analyses of the states’ budget situations were also explored in a recent New York Times story that found that many states took in as much revenue in 2020 as they did in 2019. It, too, notes the federal stimulus payments allowed people to keep spending, sometimes pushing their purchasing power above what they experienced when working, which in turn fed tax revenue from retail sales, as well as continuing to collect taxes on high earners who lost fewer jobs.

The story also warns that the pandemic is not over yet, and while some data like that from the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution pointed to signs of recovery since September, the story notes that states are viewing their budgets with caution.