State Tax and Economic Review, 2019 Quarter 4

State tax revenues showed continued growth in the first half of fiscal year 2020. State government tax revenues from major sources showed solid year-over-year growth at 6.6 percent in the fourth quarter of 2019. Preliminary data show strong growth in January and February before declines in March as the economy shut down in response to the COVID-19 epidemic.

Despite overall concerns about economic slowdown and despite weaknesses in some economic indicators before the COVID-19 pandemic fully hit the US, most states were on track to close state fiscal year 2020 budgets with no shortfalls. However, these projections are no longer valid.

States are facing unprecedented fiscal uncertainties because of the unprecedented lockdowns that have paralyzed the economy. Governors in all states are facing the challenge of drastically falling revenues and rising spending costs. Although most states had robust rainy-day funds at the beginning of this fiscal year, they will likely not be a sufficient buffer for most states.