The Pandemic Strains State Budgets

For States, Revenue Plummets as Costs Rise

July 1 is the start of the fiscal year for most state budgets and this year states have faced unprecedented challenges. Not only has tax revenue plummeted, but states are spending record amounts of money on public health measures, unemployment benefits, and other pandemic-related costs.

Income taxes and sales taxes account for two-thirds of states’ revenues. Shuttered shops and restaurants led to a significant drop-off in revenue from sales taxes, and unemployment caused income tax revenue to plummet as well. For example, Louisiana’s tax revenue fell by 43% in April 2020, compared to April 2019. Up north, New York’s revenue slid by over two-thirds.

States Will Receive Some Help

States have been gradually increasing spending for the past nine years. Before the pandemic, states were expecting revenue and spending to go up by about 2% in 2020. Instead of moving together as expected, revenue has gone down while spending has gone up.

Many states have financial reserves they can draw on, built up during the 2010s, but this money can only get them so far. The Federal Government offered a $110 billion lifeline to states to help make up for revenue shortfalls. However, the National Governors Association says this will not be enough and states will need $500 billion to recover.

Difficult Choices

Most states are required by law to balance their budgets by the end of the year. In order to accomplish this for 2020, states will be forced to slash spending in the middle of a pandemic and a recession.

Washington State is planning to cut its budget by 15%. Ohio’s governor told state agencies to decrease budgets by 20%. In California, the governor and the state legislature are deadlocked regarding a $14 billion budget cut. States have made it through recessions and moments of crisis before, and they will do it again, but not without difficult choices about budget cuts.

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Advisor
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store SoFi Android App, Get it on Google Play

ABOUT SoFi SoFi helps people achieve financial independence to realize their ambitions. Our products for borrowing, saving, spending, investing, and protecting give our more than one million members fast access to tools to get their money right. SoFi membership comes with the key essentials for getting ahead, including career advisors and connection to a thriving community of like-minded, ambitious people. For more information, visit Want an easy and convenient way to manage your financial life? Get the SoFi app. For iOS and Android.

TLS 1.2 Encrypted
Equal Housing Lender