Is Your State Going Broke? It Might Recover in Third Quarter

From New York to California, the economic shut down has caused rampant unemployment and thousands of business failures, and dramatically reduced state tax income, which is going to hurt. But as long as the virus doesn’t come roaring back, states could begin to financially mend later this summer. That’s a good thing, because the federal government might not come to the rescue.

Lucy Dadayan, who tracks state tax revenue at the Urban Institute, said:

“June is going to be bad and starting with July, if the pandemic doesn’t get any worse, then we will slowly see some improvement.”

States are just starting to report May revenue versus collections in the same month in 2019. In Texas, sales taxes, the state’s biggest revenue source, tumbled 13.2%, after falling 9.3% in April. An overall 22.5% drop in two months is going to leave a mark.

Illinois, which suffers from some of the worst state finances in the country, collected 23.1% less sales tax in May after watching sales tax receipts fall 19.6% in April, for a combined 42.5% drop.

Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers, said even if losses in tax collections ease this summer, the overall revenue decline is expected to exceed the Great Recession’s 2008-2010 drop of 11%.

That’s a problem for the social services that states provide, and will also affect employment for teachers, and thousands of other public employees.

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