March 5, 2021

State Budget
& Fiscal Conditions
National Press Foundation

Shelby Kerns
Executive Director
skerns@nasbo.org

Brian Sigritz
Director of State Fiscal Studies
bsigritz@nasbo.org

Kathryn Vesey White

Director of Budget Process Studies
kwhite@nasbo.org
 States saw revenue decline in fiscal 2020 after nine consecutive
years of growth, with greater declines forecasted for fiscal 2021

In response to weakening revenue projections, states’

enacted budgets called for first general fund spending
decrease since the Great Recession

Pandemic’s impact has been uneven, hitting all states

but in different ways and magnitudes depending on
economies, tax structures, virus transmission, etc.

Rapidly evolving economic and public health conditions

Current state fiscal have presented extraordinary challenges and
uncertainties for state budgeting
environment
Projections are moving targets, and data in this report reflect a
point in time – and differing points in time depending on when
a state enacted its budget

2 2
How do states
generate revenue?
 Revenue Sources in
the General Fund All Other GF
Percentage Revenue 17.9%
Sales 30.2%
Gaming 0.9%
Corporate
Income 6.4%
Estimated
Fiscal 2020

Personal
Income 44.6%

Source: NASBO State Expenditure Report

4 4
Variations in State Revenue Forecasting
Budget Processes Snapshot

• Just over half of states develop a consensus forecast that is adhered to by both the
governor and the legislature.
• Of the remaining states, about half have competing forecasts developed by the
executive and legislative branches, while in the others, the executive branch is
solely responsible for revenue forecasting.

• There is considerable variation in the frequency with which states release official,
actionable revenue estimates.
• Some states revise official forecasts 4 or more times per year, while some
biennial budget states release estimates once every two years.

• These process and timing variables have had more implications over the last year,
given how rapidly conditions have evolved.

5
National picture: How
has COVID-19
impacted state
revenue?
General Fund Revenue Declined in Fiscal 2020, with Steeper Declines
Expected in Fiscal 2021
Annual General fund revenue percentage change by source

Corporate
F IS C A L 2 0 2 0 F IS C A L 2Income
0 2 1 Tax
3.0%
Sales and Use Corporate
Tax Income Tax
0.0% -7.0%

Personal Income
Total General
Tax
Fund
-1.1%
-1.6% Sales and Use Total General
Tax Fund
-4.0% Personal Income
Tax -4.4%
-5.7%

Fiscal 2021 figures are based on states’ most current revenue estimates as of the time of data collection, compared to preliminary actual revenues for fiscal 2020.
Figures shown are not adjusted for impact of tax deadline shift, which deflated fiscal 2020 revenue collections for some states and inflated their fiscal 2021 projections
(if the shift was accounted for in those projections). Some states’ fiscal 2021 most current estimates pre-date COVID-19.

7
 General Fund Revenue on Track to Decline Two Consecutive Years,
Well Below Pre-Pandemic Projections
General Fund Revenue by Fiscal Year (In Billions)

$1,000
$950 $940
$912
$900 $878
$850 $839

$800
$750
$700
$650
$600
$550
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021

Nominal Revenue* Pre-COVID Revenue Estimates

*Fiscal 2021 nominal revenue figure is based on states’ most current revenue estimates as of the time of data collection. Figures shown are not adjusted for impact of
tax deadline shift, which deflated fiscal 2020 revenue collections for some states and inflated their fiscal 2021 projections (if the shift was accounted for in those
projections). A few states’ fiscal 2021 most current estimates pre-date COVID-19. Before the COVID-19 crisis, states were estimating general fund revenue to total $912
billion in fiscal 2020 and $940 billion in fiscal 2021, as reported in NASBO’s Spring 2020 Fiscal Survey of States, Table 18.

8
Where do states
spend their money?
Total State Expenditures
By Fund Source
Federal Funds, 32.4%
General Funds, 39.7%

FY20
$2,264 Billion Bonds, 1.8%

Other State Funds,

26.0%

Source: NASBO State Expenditure Report

10 10
Total State
Expenditures
K-12
By Function
Medicaid [PERCENTAGE]

28.6%

Estimated Public
Assistance
Fiscal 2020 Transportation
1.2%
7.9%
Corrections
2.9% All Other
30.7%

Source: NASBO State Expenditure Report

11 11
 General Funds
Expenditures Medicaid
19.6%
By Function K-12
Transportation [PERCENTAG
0.7% E]
Corrections
6.5%
Estimated
Fiscal 2020
All Other
27.3% Public Assistance
1.0%

Source: NASBO State Expenditure Report

12 12
 Federal Funds
Expenditures K-12
8.0%
By Function Public Assistance
2.1%

All Other
Estimated Medicaid
55.3%
24.6%

Fiscal 2020
Corrections
0.2%
Transportation
6.7%

Source: NASBO State Expenditure Report

13 13
National picture: How
have states adjusted
their spending?
 Annual General Fund Expenditure Change, Nominal (%) General Fund
Spending Expected
to Decline for First
12

10
Time Since Great
8
Recession
6 *Average 5.5
4.0
4
%
2

-2
-1.1
-4

-6

-8

* 42-year historical average annual nominal growth rate in state general fund spending is 5.4 percent.

Note: Fiscal 2021 figure is based on states’ enacted budgets, some of which pre-date the COVID-19 crisis.

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Enacted General Fund Spending for FY 2021 Came in 5.5 Percent
Lower than Governors Proposed Before COVID-19 Crisis
General Fund Spending by Fiscal Year (In Billions)
$1,000
$945
$950 $919
$903 $893
$900
$850
$800
$750
$700
$650
$600
$550
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021

Nominal Spending* Pre-COVID Budget Estimates

*Fiscal 2021 nominal spending figure is based on states’ original (or revised) enacted budgets, some of which pre-date COVID-19. Before the COVID-19 crisis, states
were estimating general fund spending to total $919 billion in fiscal 2020 and governors were recommending general fund spending totaling $945 billion in fiscal 2021,
as reported in NASBO’s Spring 2020 Fiscal Survey of States.

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 Fiscal 2021 Enacted
General Fund Appropriation Changes By Program Area Budgets Reduce
(In Billions) Spending Compared
to Levels
$15.0
$11.2
Recommended by
$10.4
$10.0 $8.1 Governors Before
$5.0
$5.5
COVID-19 Crisis
$1.3 $1.9 $1.3$0.4
$0.6 $0.2
$0.0
-$0.9 -$0.1
-$5.0
-$5.6
-$10.0 -$7.4

2021 Recommended 2021 Enacted

*Fiscal 2021 recommended and enacted spending changes are compared to enacted appropriation levels for fiscal 2020.

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 19 States Made Mid-Year Budget Reductions in Fiscal 2020 Due to a Shortfall
Budget Cuts Made After Budget Enactment

NUM BER OF STATES

IN B ILL IO N S

$35 50
45
$30 41
39 40
37 37
35
$25 35
28 30
$20
22 22 25
$15 20 18 19 19 19 20
16
13 13 14 15
$10 11
9 8 8 8 10
7 7
$5 5 4
2 3 2 5
1 0
$0 0

Number of states Amount of reduction

Gray boxes denote recessionary periods, based on a July-June fiscal year calendar that most states follow. Recession dates are as follows: Early 1990s recession (July 1990 to March 1991); Early 2000s
recession (March 2001 to November 2001); Great Recession (December 2007 to June 2009); COVID-19 Recession (February 2020 - present).

Note: Beginning in Fiscal 2018, NASBO asked states reporting net mid-year budget reductions whether the reductions were made due, at least in part, to a revenue shortfall. Effective in FY2018 going forward,
only states reporting mid-year budget cuts due to a revenue shortfall are included in the totals reported in this figure. Prior to FY2018, particularly in non-recessionary periods, states that reported mid-year cuts
that were due to other reasons, such as a reduction in caseload, would have been included in the counts above.

18
How have states used
their rainy day funds and
other tools to manage
their budgets?
States Follow Different Budget Calendars
Budget Processes Snapshot

• 30 states follow an annual budget process, while 20 states budget on a

biennial basis.
• 17 states that put together biennial budgets will pass two-year
budgets during 2021 legislative sessions.

• Some states that meet for earlier, shorter legislative sessions had
already passed their fiscal 2021 budgets before the pandemic hit.

• These and other timing variations contributed to when states took

certain budget actions, such as tapping their rainy day fund or cutting
spending.

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States Turned to Spending Cuts and Other Strategies to Address Budget
Gaps in Fiscal 2020 and Fiscal 2021
State Budget Management Strategies, Fiscal 2020 and Fiscal 2021
Number of States

25
23

20 19 19

15 15
15 14
13
10 10
10 9
8
7 7
6
5
5 4
3 3 3
2 2 2 2 2
0

2020 2021

21
Rainy Day Fund Balances Decline Overall, But Median Balance Holds Steady
Rainy Day Fund Balance as a Percentage of General Fund Expenditures

12%

9%

6%

3%

0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Fiscal Year

Total Median

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Why have some states seen
revenues improve compared
to earlier projections?
Reasons for Revenue Improvements since Spring 2020

• Federal stimulus measures pumped a lot of money into the economy – PPP
loans, enhanced unemployment, stimulus checks

• Personal income side, impact has been mostly felt by low-wage earners;
wealthy have not been as impacted

• Sales tax broadening efforts – especially online sales after Wayfair

• Impact has been more on services than goods

• However, often a lag between onset of a downturn and full impact on state
revenues
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What are characteristics of
states that have been hit
hardest by the pandemic?
Uneven Impact of Downturn on States

• All states being impacted, but in differing ways and varying magnitudes

• States heavily dependent on tourism and energy sector have been

disproportionately impacted
• States facing higher unemployment rates are generally seeing larger impacts on
their economies and tax structures

• States’ revenue structure can also have an influence

• Disproportionate impact on low-income workers has led to increased

spending demands

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How have states used
CRF and other federal
assistance?
Executive v. Legislative Budget Authorities
Budget Processes Snapshot

• In most states, the executive branch has some authority to spend unanticipated federal
or other non-general funds without legislative approval.
• However, some states require legislative action to authorize the expenditure of
these funds.

• Even for those states where the governor has this authority, there are usually some
restrictions.

• Legislatures’ ability to meet in regular or special session to approve the use of funds
was in some cases inhibited by public health restrictions.

• In most states, the executive branch may reduce or withhold appropriations under
certain conditions, but in some states, only lawmakers have this authority.

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What is the outlook for
state budgets?
In 2021 legislative sessions, A slowdown in jobs growth, lack
of direct federal aid to states,
states continue to face
and a continued surge in virus
considerable uncertainty
cases would strain states’
regarding their budget
economies and budgets further
outlooks

Outlook for
Recent revenue forecasts are States Fiscal Recovering from revenue
more optimistic than 2021 and Beyond decreases and slowdowns in
expected, but rising spending economic activity can stress
demands are expected to put state budgets for years to
added pressure on state come
budgets
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 w w w. n a s b o . o r g

Shelby Kerns
Executive Director
National Association of State Budget Officers | NASBO