The precipitous drop in March state tax revenue caused by the coronavirus health emergency generally has been widespread and broadly-based among the states.
“The impact from the coronavirus is hitting all revenue sources that states depend on,” said Shelby Kerns, executive director of the National Association of State Budget Officers. “We anticipate that all states will experience revenue declines, and most will likely face significant shortfalls.”
Drops in personal income taxes, withholding taxes, capital gains, sales taxes, corporate taxes and gas taxes are among the widespread impacts, said Brian Sigritz, director of state fiscal studies at NASBO.
Because the federal government has postponed the federal income tax filing deadline by 90 days to July 15, 28 states also have reset their filing deadline to the same date, which is 15 days into the 2021 fiscal year for most of them, according to the
In addition, Michigan has postponed its tax filing deadline to July 31. Hawaii has reset it to July 20 and Connecticut to June 15.
“There’s a strong possibility that the delayed revenues will also be
Early official estimates of current fiscal year revenue drops include $353 million in Arkansas, $396 million in Colorado, $219 in Oklahoma and $224 million in Vermont, the CBPP said.
“And early state estimates show that revenues for the next fiscal year, which begins on July 1 for most states, could fall as much or more than they did in the worst year of the Great Recession,” CBPP said. “New York and Colorado, for example, project revenue drops of 13% or more if the recession is deep.”
“We do not currently anticipate any states will be unable to meet operating cash demands but consider liquidity the most significant risk the pandemic presents for states and are closely monitoring developments,” Fitch said.
S&P Global announced Thursday that its U.S. public finance outlook for all sectors is now negative.
Most sectors, including state governments, had had stable outlooks.
“The shift in our outlooks to end the first quarter reflects the expectation of sharp decline in the economy through at least the second quarter and uncertainty about the rate of spread and peak of COVID-19 as well as the timing of economic recovery,” S&P said.
On the positive side, state governments did not have any credit downgrades for approximately the 16 previous months, which exemplifies how states are in a relatively good financial shape in advance of this “remarkable hit,” said Geoffrey Buswick, a managing director of S&P Global.
Only five states -- Connecticut, Illinois, Kentucky, Pennsylvania and New Jersey -- are not rated double A or higher by S&P Global. “As those credit ratings are not as high as their peers, we’ve recognized some credit stresses there,” Bushwick said.
Moody’s Investors Service on Wednesday took a more narrow approach, dropping its outlook for New York State and New York City to negative. But actions involving other states could follow.
The good news is that states entered this crisis coming off of two years of strong revenue growth and with their rainy day funds and reserves at all-time highs.
Preliminary data from 45 states show total state taxes grew 7.6% in February compared to a year earlier, according to the State and Local Finance Initiative at the Urban Institute. Total tax revenues grew 6.5%, personal income taxes grew 6.6%, corporate income taxes grew 12.5%, and sales taxes grew 5.9% in the first eight months of fiscal year 2020.
The Urban Institute said most states have seen healthy growth in tax revenue collections between July 2019 and February 2020 covering the first eight months of the fiscal year for 46 states.
But the Urban Institute report authored by Senior Research Associate Lucy Dadayan described the outlook for the remainder of this year as “bleak.”
"Overall, most states have rainy day funds and can weather the crisis in a short-run," Dadayan said. "However, not every state is in a good position. For example, states like Kansas, Illinois, and Pennsylvania are ill-prepared."
States are going to have to take steps so that their budgets remain balanced and will have to draw down their rainy day funds, taking into account that they may need those funds to last over a couple of years.
NASBO’s Kerns said the response will vary by state.
“Some will tap their rainy day funds,” she said. “Some will do tax anticipation notes. I think you will see a lot of varying responses. States are still figuring out what the federal CARES Act means for them.”
The $2 trillion package of emergency spending included $150 billion for a Coronavirus Relief Fund to be distributed to state and local governments.
