Economic Downturns: Protecting State and Local Budget Priorities in Challenging Times

States have been hit unevenly, but all face long-term uncertainty

Economic Downturns: Protecting State and Local Budgets
Last Updated March 31, 2021
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State governments play a fundamental role in the lives of residents by collecting taxes and using that revenue to pay for schools, transportation, public safety, and other policy priorities. In particularly challenging times, when revenue is volatile and priorities may need to be reassessed, it is important that lawmakers manage budgets effectively to mitigate fiscal stress. Although leaders cannot control many external factors that influence state and local fiscal health—such as global economic conditions, federal policies, or demographic changes—they do decide how to react to those events. And these actions can help determine whether a state or locality remains fiscally sound.

In this series of publications, experts at The Pew Charitable Trusts examine how state leaders are reacting to the current fiscal landscape. Each explores the limits that states face when preparing for fiscal stress and provides key considerations for leaders making budgetary decisions. The series also details fiscal and economic policy recommendations for managing effectively during unforeseen events—such as the COVID-19 pandemic—and preparing for future uncertainty. 

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In 2010, Michigan’s economy was reeling. The Great Recession had hit the state hard and U.S. automakers were struggling to survive. Seeking to ease the pain, state officials authorized tax credits under the Michigan Economic Growth Authority (MEGA) program as part of long-term deals with distressed automakers.

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States Forecast Pandemic's Effects on Revenue

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States received a huge boost when President Joe Biden signed a $1.9 trillion relief package on March 11 that provides an extra $195 billion in federal aid to help plug budget shortfalls and repair economies ravaged by the coronavirus pandemic.

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How States Can Respond to Pandemic-Related Fiscal Strains

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State policies and decisions play a critical role in how successfully local governments manage their budgets through economic downturns and other temporary setbacks. New York’s state government, for example, balanced its budget in part through substantial cuts in financial aid to local governments after the COVID-19 pandemic began last year.

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How States Can Balance Budgets and Uncertainty

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After scrambling to close midyear budget gaps, sustain needed services, and help the millions suddenly left jobless nationwide by pandemic shutdowns, state governments now confront additional and urgent decisions. Although conditions are improving, COVID-19 and its impact still top state legislative agendas. The difficult climate this year exacerbates the perennial pressure on state policymakers to focus on immediate crises while pushing complex, ongoing problems into the future.

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Agenda for America

A collection of resources to help federal, state, and local decision-makers set an achievable agenda for all Americans

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Data-driven policymaking is not just a tool for finding new solutions for emerging challenges, it makes government more effective and better able to serve the public interest. In the coming months, President Joe Biden and the 117th Congress will tackle a number of environmental, health, public safety, and fiscal and economic issues—nearly all of them complicated by the COVID-19 pandemic. To help solve specific, systemic problems in a nonpartisan fashion, Pew has compiled a series of briefings and recommendations based on our research, technical assistance, and advocacy work across America.

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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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