Fiscal 50: State Trends and Analysis

State Trends and Analysis: Fiscal 50
Last Updated October 14, 2021
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States' Tax Revenue Recovery Improves

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Tax revenue in a majority of states had rallied to pre-pandemic levels by the end of the first quarter of 2021, but total collections nationwide and those in 20 states had yet to fully recover, after adjusting for inflation. Preliminary estimates showed that tax revenue continued to grow widely in ensuing months, reflecting states’ brightening fiscal outlooks as the recession’s impacts waned—though threats from COVID-19 persisted.

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States' Financial Reserves to Surpass Pre-Pandemic Levels

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Unprecedented federal aid and smaller-than-anticipated tax revenue shortfalls have allowed the majority of states to avoid tapping their rainy day funds since the outset of the pandemic-driven recession in early 2020.

Pew’s Fiscal 50: State Trends and Analysis presents 50-state data on key fiscal, economic, and demographic indicators and analyzes their impact on states’ long-term fiscal health.

States’ Fiscal Prospects Brighten as Recovery Progresses

After an initial jolt to state finances, smaller-than-expected revenue shortfalls and unprecedented federal aid have lifted states’ outlooks. Many economists had predicted a dark chapter for state budgets when the coronavirus pandemic triggered a historic contraction in the U.S. economy in early 2020, abruptly ending the longest U.S. economic expansion on record. But the recession proved to be the shortest on record and less dire than expected for state budgets, though lingering economic effects and threats from COVID-19 have persisted.

A hallmark of the 2020 recession has been its divergent effect on state tax revenue. By the end of the first quarter of 2021, tax collections in the majority of states had surpassed pre-pandemic levels after adjusting for inflation. But receipts were still lagging nationwide and in 20 states—by double-digit percentages in six of them.

Meanwhile, robust federal aid has played a central role in supporting the economy and state finances. Federal assistance for taxpayers, businesses, and state and local governments—along with higher-than-expected tax collections—helped alleviate stress on budgets and has allowed the majority of states to avoid tapping their rainy day funds. In fact, after dipping briefly in fiscal year 2020, the total amount set aside in rainy day funds nationwide was expected to grow to a new high at the end of fiscal 2021. Still, four states had less than a week’s worth of operating costs set aside as the delta variant’s emergence fueled new unease about the recovery’s trajectory.

States hit another record in the first quarter of 2021 when federal government assistance and modest gains in earnings pushed total state personal income to its largest year-over-year rate on record. The growth in personal income occurred despite a crushing wave of job losses, particularly among lower-wage workers, battering a job market that had only recently recovered to pre-Great Recession levels. The percentage of adults in their prime working years who held jobs fell in 2020 in every state as the pandemic disrupted the economy.

Tax revenue

States’ Tax Revenue Recovery Improves at Start of 2021. Tax revenue in a majority of states had rallied to pre-pandemic levels by the end of the first quarter of 2021, but total collections nationwide and those in 20 states had yet to fully recover, after adjusting for inflation. Preliminary estimates showed that tax revenue continued to grow widely in ensuing months, reflecting states’ brightening fiscal outlooks as the recession’s impacts waned—though threats from COVID-19 persisted. View the indicator or print the analysis.

Reserves and balances

States’ Financial Reserves Estimated to Surpass Pre-Pandemic Levels. After a one-year dip, states’ combined fiscal cushion—counting rainy day funds and leftover budget dollars—was expected to spring back and exceed pre-pandemic highs by the start of fiscal 2022, which began in July in most states. A faster-than-anticipated revenue recovery from the pandemic’s early fallout has allowed many states to bolster their financial reserves or mitigate declines. View the indicator or print the analysis.

State Personal Income 

States Began 2021 With Record Personal Income Growth. In the first quarter of 2021, as the national economy continued to recover, most states had record personal income growth, driven by a new wave of federal pandemic relief payments to individuals and businesses. Less than a year after the two-month recession officially ended in April 2020, total personal income in every state had exceeded its pre-pandemic levels at least temporarily, after accounting for inflation. However, the sum of Americans’ personal income was set to decline significantly as historically high government assistance tapered off. After the Great Recession, it took five years for every state’s personal income to fully rebound. View the indicator or print the analysis.

Employment-to-Population Ratio 

COVID-19 Deals Setback to All States’ Employment Rates. Adults of prime working age were employed at lower rates in every state in 2020 than in 2019, just before the COVID-19 recession. But the severity of declines varied throughout the country. Drops in the percentage of 25- to 54-year-olds with a job were generally most pronounced in states dependent on leisure and hospitality jobs, such as Nevada and Hawaii, as business shutdowns to curb the pandemic pummeled this sector of the economy. The economic recovery has since accelerated. As of July 2021, the prime-age employment-to-population ratio had rebounded by three-quarters from its low in April 2020. View the indicator or print the analysis.

Long-running challenges complicate recovery

The coronavirus pandemic intensified two challenges already facing states: It put pressure on Medicaid, the health care program that is most states’ second-biggest budget expense, and introduced a novel source of volatility that triggered unexpected swings in tax revenue, upsetting policymakers’ plans for balanced budgets.

Meanwhile, states continued to face fiscal pressures from inherited shortfalls in funding for public employees’ pension and retiree health care benefits; recurring deficits between annual state revenue and expenses; and weak population growth, which can diminish economic prospects and revenue collections.

One lifeline for states continued to be federal dollars, which made up roughly one-third of all state revenue before the latest economic shock led to a boost in federal aid to states.

State Medicaid Spending

States Collectively Spend 17 Percent of Their Revenue on Medicaid. Medicaid consumed a greater portion of states’ own money in nearly every state between fiscal 2000 and 2017. States’ increases varied widely, however, from less than 1 cent to nearly 12 cents more per dollar of state-generated revenue, exerting different degrees of budget pressure. Medicaid’s claim on state revenue surged in the wake of the Great Recession, after temporary federal economic stimulus dollars expired but before the federally funded expansion of Medicaid eligibility began, and has remained stable since. Medicaid is most state governments’ second-biggest expense, after K-12 education. View the indicator or print the analysis.

Tax revenue volatility

Volatile State Tax Collections Make Budgeting Difficult. All states experience swings in their tax revenue from year to year, but some fluctuate more than others, leading to surprise shortfalls or windfalls that can make it hard for policymakers to manage budgets. During the 20 years ending in fiscal 2020, Alaska recorded the greatest volatility and South Dakota the least, after removing the effects of state tax policy changes. Taxes on oil and mineral extraction and corporate income were consistently more volatile than other major tax streams. In early 2020, the coronavirus pandemic introduced another dose of volatility as tax revenues took their steepest plunge during a single quarter in at least 25 years. View the indicator or print the analysis.

Debt and Unfunded Retirement Costs  

Long-Term Obligations Vary as a Share of State Resources. Unfunded pension benefits were the largest, most prominent, and fastest-growing of a selection of future costs facing states as of 2013. States reported $968 billion in unfunded pension costs—the equivalent of 6.9 percent of 50-state personal income, as well as $587 billion in unfunded retiree health care liabilities (4.2 percent of personal income) and $518 billion in outstanding debt (3.7 percent). If not properly managed, these costs can limit future budget flexibility and raise borrowing costs. View the indicator or print the analysis.

Fiscal Balance

9 States Struggle With Long-Term Fiscal Imbalances. Even in the aftermath of two recessions, most states amassed sufficient revenue between fiscal years 2004 and 2018 to cover all their expenses. But total revenue in nine states fell short, jeopardizing those states’ long-term fiscal flexibility and pushing off to future taxpayers some past costs for operating government and providing services. States can withstand periodic deficits without endangering their fiscal health over the long run. But chronic shortfalls are one indication of a more serious, unsustainable structural deficit in which revenue will continue to fall short of spending absent policy changes. View the indicator or print the analysis.

Population Change

Population Growth Sputters in Midwestern, Eastern States. Population growth slowed in most states over the past decade, with Illinois, Mississippi, and West Virginia losing residents. The deceleration was the most pronounced in the Northeast and Midwest, while the fastest-growing states were in the South and West. Nationally, population growth between 2010 and 2020 slowed to a rate not seen since the Great Depression. Population trends matter to both state government finances and economic growth. View the indicator or print the analysis.

Federal Share of State Revenue

Federal Funds Hover at a Third of State Revenue. The federal government is the second-largest source of state revenue—accounting for 32.4 percent of the total in fiscal 2017—meaning that federal budget decisions also play a key role in state budgets. But states’ reliance on federal funds varies widely, ranging from about 21 percent of revenue in Hawaii to more than 46 percent in Montana. The share of states’ revenue made up by federal dollars in fiscal 2017 was the fourth-largest on record. View the indicator or print the analysis.

fiscal 50
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Fiscal 50

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Fiscal 50: State Trends and Analysis, an interactive resource from The Pew Charitable Trusts, allows you to sort and analyze data on key fiscal, economic, and demographic trends in the 50 states and understand their impact on states’ fiscal health.

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Issue Brief

‘Lost Decade’ Casts a Post-Recession Shadow on State Finances

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Issue Brief

‘Lost Decade’ Casts a Post-Recession Shadow on State Finances

Nearly 10 years after the end of the Great Recession, state governments have put the worst behind them. But the deepest downturn since World War II also has lived up to early predictions that states would face a “Lost Decade” because of missed economic and revenue growth.

Where States Get Their Money, FY 2019
Where States Get Their Money, FY 2019
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Where States Get Their Money, FY 2019

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Taxes and federal funds together account for 80.5% of revenue for the 50 states. Taxes are the largest revenue source in 46 states, while federal funds are greatest in four: Alaska, Louisiana, Montana, and Wyoming.

How states raise their tax dollars
How states raise their tax dollars
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How States Raise Their Tax Dollars, FY 2020

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Taxes make up about half of state government revenue, with two-thirds of states’ total tax dollars coming from levies on personal income (36.5%) and general sales of goods and services (32.2%).