Shortfalls in tax revenues leave states facing layoffs and service cuts

Michael Braga, USA TODAY
Oct 21, 2020

A combination of COVID-19 and plunging oil prices have caused states’ tax revenues to drop more than 6% during the six months from the first pandemic shutdowns in March through the end of August.

The 46 states that have reported their tax figures for the period show a combined revenue drop of nearly $30 billion compared with the same stretch last year, according to the Urban Institute, a Washington, D.C. think tank that analyzes tax policy and other issues.

Oil and gas producing states were the first to feel the impact as plummeting worldwide demand and prices in February rocked their economies only to be quickly followed by COVID-19 retail closures in March and April. The lack of sales activity meant dramatically lower tax collections at least for the first few months of the crisis.

But the decline in tax revenues over the long haul has not been nearly as bad as the 10% to 20% declines many were predicting early in the crisis and is only about half the 11% drop in tax collections logged from October 2008 through September 2009 during part the Great Recession. Tax experts and economists say the present shortfall is still significant, and now that a federal stimulus package appears to be off the table at least until after the election, some states are looking more seriously at slashing government jobs or services in the year ahead.

“This is a global crisis,” said Lucy Dadayan. a senior research associate with the Urban-Brookings Tax Policy Center at the Urban Institute. “States have to balance their budgets. They can’t borrow money to address decreases in revenues. So, the federal government should step in to help.”