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.
Still, there is much that decision-makers can learn from recent events to make progress on structural reforms that will improve state fiscal health over the long run. They cannot control many factors affecting their state’s bottom lines—such as global economic conditions, federal policies, demographic changes, or pandemics—but well-managed states can stay on track, whatever unforeseen circumstances may arise.
Improving fiscal management does not have to further strain current budgets. Instead, enacting certain policies and practices will help states better manage finances now and in the coming years. But policymakers need to get the details right, and this may take more time than legislatures and state executives have during typical sessions. States can commit now to such efforts by making them a priority for interim committee work or special studies. Every state has already made progress on one or more of these ideas, but each has room to improve.
First, states need strategies to manage uncertainty and adapt quickly when fiscal crises arise. Experience and research show that:
Second, crafting multiyear budget plans can help ensure that this year’s budget decisions do not create future deficits. Experience and research show that:
Third, states can improve how they support localities that may be struggling economically and fiscally. For example:
Jeff Chapman is a director and Josh Goodman is a senior officer with the state fiscal health project at The Pew Charitable Trusts.