STATE AND LOCAL GOVERNMENT FINANCES IN THE COVID-19 ERA

Abstract

The COVID-19 pandemic and resulting recession put enormous strain on state and local government budgets. State personal income and sales tax revenues, which together account for more than 60 percent of general own-source funds, fell further and faster than in the depths of the Great Recession. Although some personal income tax losses stemmed from filing deadline extensions and would be recovered later in the year, states in particular also contended with increased direct and indirect costs stemming from COVID-19. As in prior downturns, the federal government stepped in to help states and localities facing massive gaps between projected revenues and spending, but aid provided thus far has been incommensurate to the scale and timing of the challenge. This paper provides a point-in-time description of state and local government finances as of July 2020, the start of a new fiscal year in most states and localities. It also assesses federal relief compared to prior recessions and offers a few directions for reform.

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