From Boom to Bust.

AuthorRafool, Mandy
PositionFISCAL - Impact of Covid-19 pandemic

States welcomed the new decade and 2020 with strong economic growth and healthy finances. Tax collections were robust. Spending was keeping pace with revenues. Rainy day funds were full, unemployment was low and business was booming. True, a few dark clouds hung over oil- and gas-producing states because of low energy prices, but, by and large, the fiscal outlook for states was bright.

Fast forward a few weeks, and boom! It's all gone in a flash with the arrival of the coronavirus. Heading into fiscal year 2021, states face an economic downturn of unprecedented magnitude and a dismal fiscal outlook.

Efforts to curb the spread of COVID-19 with stay-at-home orders have wreaked havoc on state budgets. Not only did state revenues come to a screeching halt as economic activity paused, but the legislative process itself was interrupted. Most states suspended legislative sessions in mid-March, leaving about half the states without enacted budgets.

Since then, lawmakers have scrambled to ensure continued funding because state laws require balanced budgets prior to the new fiscal year, which starts for 46 states on July 1. At the end of April, 30 states had enacted FY 2021 budgets. In some cases, they were modified versions, while other states passed bare-bones budgets that can be filled in later or approved continuing resolutions. Some states took more unusual measures. New Jersey changed the date of its fiscal year, from July 1 to Oct. 1. Kentucky diverted from its regular two-year budget and passed an annual budget because of economic uncertainty.

The landscape has changed. Now, thousands of people are sick and millions more are out of work. Health care spending and unemployment benefits have skyrocketed, while state tax collections have plunged. As a result, many states will need to reconvene to reconcile previously enacted FY 2021 budgets with the new economic reality.

Yet, what that new reality will look like remains unclear. State...

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