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 Conditions Strengthen While Uncertainty Mounts
After an initial jolt to state finances, stronger-than-expected tax revenue growth 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 most states now enjoy surprisingly strong fiscal conditions, though rising inflation, international turmoil, and the unpredictable course of the pandemic pose continuing threats.
A hallmark of the pandemic economy has been its divergent effect on state tax revenue.From the start of the pandemic through the first quarter of 2022, cumulative tax revenue nationally and in most states was higher than it would have been if pre-pandemic growth trends had continued. Still, total receipts underperformed pre-COVID-19 growth trends in slightly more than a third of states, and experts expect collections to temper substantially in fiscal year 2023.
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 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 grew to a new high by the end of fiscal 2021.
States’ economies have generally experienced steady growth in recent years despite the pandemic’s disruption. The national rate of prime-age adults with a job almost fully rebounded to pre-pandemic levels during the 12-month period ending in June that corresponds with most states’ fiscal year 2022. Every state recorded an annual increase last year in total personal income from all sources, another key economic indicator. Earnings from work, which experienced the sharpest growth in over two decades, drove much of the gains. Pandemic-related government assistance to individuals and businesses also contributed, although much of the aid has since subsided.
Tax Revenue in Most States Surpasses Pre-Pandemic Growth Trend. In nearly two-thirds of states—the most since the pandemic's start—tax revenue had outperformed its pre-COVID growth trajectory by the end of the first quarter of 2022, when combining all receipts since January 2020. Still, uncertainty about the strength of future collections is mounting amid slowing economic growth and historically high inflation rates. View the indicator or print the analysis. (Last updated September 7, 2022)
Reserves and balances
Budget Surpluses Push States’ Financial Reserves to All-Time Highs. After an early pandemic decline, states had collectively amassed their largest fiscal cushion on record by the start of the current budget year. Higher-than-expected tax revenue—among other temporary factors—drove the total held in savings and leftover budget dollars to new highs. As states approach the close of fiscal year 2022, most expect to spend down at least a portion of their surplus funds. View the indicator or print the analysis. (Last updated May 9, 2022)
State Personal Income
States See Gains in 2021 Personal Income, But Growth Varies. Every state experienced personal income growth in 2021 as the economy continued to rebound from severe losses earlier in the pandemic. Earnings from work drove much of the gains, recording the steepest annual rate increase in over two decades. Federal aid and other public assistance further contributed to the growth, climbing from 2020’s elevated levels. Total growth ranged from more than 5% in Idaho and South Dakota to nearly zero in Vermont, after accounting for inflation. View the indicator or print the analysis. (Last updated May 12, 2022)
States’ Prime-Age Employment Rates Tick Up. Americans of prime working age increasingly held jobs in fiscal year 2022, as businesses seeking to bounce back from losses earlier in the pandemic hired more workers. In the majority of states, however, the share of 25-to-54-year-olds who were employed on average over the 12-month period ending in June was still lower when compared to pre-pandemic levels. Growth may have stalled more recently as the national prime-age employment rate has remained relatively flat since March. View the indicator. (Last updated September 15, 2022)
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, complicating revenue forecasting and budgeting..
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. (Last updated January 9, 2020)
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. (Last updated October 14, 2021)
Debt and Unfunded Retirement Costs
States’ Unfunded Pension Liabilities Persist as Major Long-Term Challenge. Unfunded pension obligations are most states’ largest long-term liabilities and have consistently outranked debt and retiree health care as a challenge for states’ budgets. According to the most recent available data, states collectively reported $1.25 trillion in unfunded pension benefits in fiscal year 2019, the equivalent of 6.8% of total personal income. Unfunded retiree health care promises stood at 4% of all states’ personal income in 2016, and debt claimed 2.7% of total personal income in 2020. If not properly managed, these liabilities can limit future budget flexibility and raise borrowing costs. View the indicator or print the analysis. (Last updated July 7, 2022)
Before Pandemic, Spending Exceeded Long-Term Revenue in 8 States. Most states amassed sufficient revenue between fiscal years 2005 and 2019 to cover all their expenses, despite the Great Recession’s blow to state finances. But in eight states, revenue collected from taxes, federal funds, and other sources fell short, 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. (Last updated November 15, 2021)
A Third of States Lost Population in 2021. Population growth over the 2010-20 decade slowed nationally to a rate not seen since the Great Depression, and the COVID-19 pandemic amplified this long-term trend. Annual growth was approximately five times slower in 2021 than over the preceding 10-year period. Population in 17 states shrank over the year, including Illinois, Mississippi, and West Virginia, the three states that also lost residents over the 2010s. Growth over the decade and in 2021 was especially sluggish in the Midwest and Northeast as people continued to move to Southern and Western states. Population trends are tied to states’ economies and government finances and are therefore useful for understanding both. View the indicator or print the analysis. (Last updated April 25, 2022)
Federal Share of State Revenue
2019 Federal Share of State Revenue Remains Stable. The federal government is the second-largest source of state revenue—accounting for 31.4% of the total in fiscal 2019—a share that is expected to grow in the aftermath of the COVID-19 pandemic, which led to an influx of federal aid. But states’ reliance on federal funds varies widely, ranging from 20.1% of revenue in Hawaii to 44.8% in Louisiana. The share of states’ revenue made up by federal dollars in fiscal 2019 was among the largest on record. View the indicator or print the analysis. (Last updated December 22, 2021)