Fiscal 50: State Trends and Analysis, an interactive resource from The Pew Charitable Trusts, allows you to sort and analyze data on key fiscal, economic, and demographic trends in the 50 states and understand their impact on states’ fiscal health. Read the key findings below.
November 5, 2020
The coronavirus pandemic in early 2020 abruptly ended the longest U.S. economic expansion on record and with it a promising stretch for states’ finances. Long-running pressure on state budgets had eased in 2019 amid widespread economic growth and tax revenue gains that led in many states to the first budget surpluses in years. Still, some states were in a stronger position than others as they began to experience a public health emergency and their greatest fiscal and economic tests since the Great Recession of 2007-09.
Despite a long recovery marked by slow tax revenue growth, the vast majority of states experienced a spurt of healthy tax collections just before COVID-19 hit and shocked the nation’s economy. At the end of 2019, all but six states were taking in more tax money than they did before the Great Recession inflicted losses in every state. Half of states had posted double-digit gains since the recession, but others collected just barely as much as they did a decade earlier, after adjusting for inflation. The recent surge in tax revenue had led many states to add to their rainy day funds, which at the start of fiscal year 2020 amounted nationally to states’ largest cushion in at least two decades. At least 17 states turned to those savings before the end of fiscal 2020 to help close budget gaps or cover pandemic expenses.
The economy and employment rates were on the upswing through the close of 2019. Nationally, the percentage of adults in their prime working years who held jobs had finally recovered at year’s end, although nearly half of states were still below pre-Great Recession levels. For the first time since the 2007-09 downturn, every state for two consecutive years had experienced gains in total personal income. But pandemic-related shocks to the economy in the second quarter of 2020 led to widespread drops in business profits and earnings from work, even as state personal income surged because of unprecedented federal aid to individuals and businesses.
The coronavirus pandemic was expected to intensify two challenges already facing states by increasing costs for Medicaid, the health care program that is most states’ second-biggest budget expense, and triggering swings in volatile tax revenue, which can confound policymakers’ efforts to balance budgets.
Meanwhile, states continued to face fiscal pressures from inherited shortfalls in funding for public employees’ pension and retiree health care benefits; recurring deficits between annual state revenue and expenses; and weak population growth, which can diminish economic prospects and revenue collections.
One lifeline for states continued to be federal dollars, which made up roughly one-third of all state revenue before the latest economic shock led to a boost in federal aid to states.
Click here for a printable version of this analysis.
Pew’s Fiscal 50: State Trends and Analysis is an interactive tool that allows you to sort and analyze data on key fiscal, economic, and demographic trends in the 50 states and understand their impact on states’ fiscal health. With this tool, you can:
The primary objective of Fiscal 50 is to provide insights into states’ long-term fiscal health on a range of metrics. This tool is not meant to be a comprehensive assessment of a state’s finances or a replica of state budget statistics that are published by a variety of experts. Rather, Fiscal 50 selectively presents data and analyses that help states look beyond their current budgets, size up their progress over time, consider different ways to measure performance, and easily compare their outcomes with neighbors or peers that have similar resources and challenges.
This resource will be updated regularly with more analysis, fresh data, and additional indicators.
Fiscal 50 identifies five core areas that are essential to states’ fiscal health: revenue, spending, economy and people, long-term costs, and fiscal policy. Indicators for each of these are selected with states’ long-term financial well-being in mind. Pew solicited advice from outside fiscal experts in choosing them.
Fiscal 50 builds on data from U.S. government agencies, the Nelson A. Rockefeller Institute of Government, the National Association of State Budget Officers, the National Governors Association, and Pew’s own research. Differences can be expected between certain fiscal data used in this analysis and data compiled and used by states for budgeting purposes. Statistics featured in Fiscal 50 are the best available for drawing fair comparisons across states.
A decade after the start of the Great Recession, 34 states—the most yet—were taking in more tax revenue at the end of 2017 than before receipts plunged in the downturn, after accounting for inflation. Total state collections surged in the fourth quarter, but some of the spike was temporary as taxpayers rushed to take advantage of certain federal tax breaks set to be curtailed in 2018. Read more below.
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In the fourth quarter of 2017, state tax revenue collectively swelled to a new high of 9.1 percent above its 2008 peak during the recession, after adjusting for inflation and averaging across four quarters to smooth seasonal fluctuations. That was up from 7.2 percent in the previous quarter and among the largest jumps in quarterly tax revenue since the economic recovery began.
After nearly two years of weak tax revenue growth, many states reported robust gains for the end of last year as Congress prepared to pass the Tax Cuts and Jobs Act. An unusually large number of states—15—saw revenue spike by at least 10 percent in the fourth quarter of 2017 compared with the same period a year earlier.
Some growth was driven by taxpayer behavior, resulting in a one-time revenue bump. Taxpayers—especially high-income earners—had an incentive to accelerate the timing of payments to states before a long-standing tax break was cut back under the tax law passed last year. The federal deduction for state and local tax payments was capped at $10,000 beginning this year.
But the growth spurt may be short-lived. States can expect weaker growth in the first quarter of 2018, according to the Nelson A. Rockefeller Institute of Government. Collections this year also face uncertainty from the effects of federal tax changes because income tax rules in most states are linked in some way to the federal tax code, and federal rule changes can affect states’ collections. As states come out of a period of exceptionally slow revenue growth, the volatile revenue pattern ahead poses a new challenge.
The latest results mean that the 50 states combined had the equivalent of 9.1 cents more in purchasing power in the fourth quarter of 2017 for every $1 they collected at their peak in 2008.
Total state tax revenue has rebounded more slowly after the 2007-09 recession than it did after any of the three previous downturns. But trends have varied widely by state. In nine of the 34 states in which collections had recovered from their recession losses by the fourth quarter of 2017, tax revenue—and thus purchasing power—was more than 15 percent higher than at its peak before or during the recession. Conversely, collections were down 15 percent or more in two of the 16 states in which tax revenue was still below peak.
As states regain fiscal ground lost in the recession, policymakers face pressure to catch up on investments and spending postponed because of the downturn. That may be more difficult in states where tax revenue remains below its previous peak. But even a return to peak levels can leave states with little extra to make up for cuts in federal aid or to pay for costs associated with population increases, growth in Medicaid enrollment, deferred needs, and accumulated debts.
Ten years after the recession started in December 2007, a comparison of tax receipts in the fourth quarter of 2017—with each state’s peak quarter of revenue before the end of the recession—averaged across four quarters and adjusted for inflation—shows:
State tax collections rose sharply in the fourth quarter of 2017, which was halfway through most states’ 2018 budget year. All major tax streams recorded stronger gains, including sales taxes, which have consistently trailed the growth seen in past economic expansions.
The largest gains were in personal income tax collections, in part because of taxpayer behavior in response to the federal tax changes passed at the end of the year. Additional gains in some states came from payments that hedge fund managers made on earnings required to be returned from offshore accounts by the end of last year, according to the Rockefeller Institute. Robust stock market growth throughout 2017 also contributed to income tax receipts’ strong performance, while rising energy prices benefited tax collections in states that depend on fossil fuel production.
Just six states saw drops in inflation-adjusted tax dollars in the fourth quarter of 2017, the fewest since the second quarter of 2013. Despite the unusually strong performance at the end of last year, state tax revenue—like the U.S. economy—has grown slowly and unevenly since the recession. Throughout much of 2016 and 2017, collections were stymied in certain states by sagging energy and crop prices, and nationwide by weak wage growth. More broadly, consumer spending has been migrating toward services and online purchases that are less likely to be taxed.
Looking ahead, the federal tax cut passed in December incorporates a range of changes to federal tax exemptions, deductions, and credits that could carry over and trigger changes in state tax collections. Some states have altered their tax codes in response to federal action.
Over the past 10 years, the number of states that have regained their tax revenue levels has risen and fallen, reflecting volatility in state tax collections as well as tax policy changes.
Nationally, tax revenue recovered from its losses in mid-2013, after accounting for inflation. But individual state results have differed dramatically depending on economic conditions, population changes, and tax policy choices since the recession.
In 2010, North Dakota was the first state to surpass its recession-era peak, followed by Vermont, then Arkansas and New York by mid-2011. Tax receipts were above peak in 16 states at the end of 2012; 22 states at the end of 2013; 22 states at the end of 2014; 28 states at the end of 2015; 31 states at the end of 2016; and 34 states at the end of 2017. The most recent state to recover was Arizona, at the end of last year.
State policymakers also have contributed to revenue trends, enacting tax cuts in states such as North Dakota and Texas and hikes in states such as Louisiana and Washington. According to the National Association of State Budget Officers, states in the past three fiscal years have enacted more tax increases than cuts overall, while doing the opposite in fiscal years 2014 and 2015.
State budgets do not adjust revenue for inflation, so tax revenue totals in states’ documents will appear higher than or closer to pre-recession totals. Without adjusting for inflation, 50-state tax revenue was 25.2 percent above peak and tax collections had recovered in 47 states—all except Alaska, Oklahoma, and Wyoming—as of the fourth quarter of 2017. Unadjusted figures do not take into account changes in the price of goods and services.
Adjusting for inflation is just one way to evaluate state tax revenue growth. Different insights would be gained by tracking revenue relative to population growth or state economic output.
Analysis by Barb Rosewicz and Daniel Newman.
Click here for a printable version of this analysis.
Quarterly revenue is adjusted for inflation and smoothed using a four-quarter moving average. Comparisons are based on each state’s peak level since 2006 to capture the effects of the Great Recession. Tax revenue in Michigan and New Hampshire actually peaked before 2006. Note that quarters are labeled by calendar, not fiscal, year.
The data include revenue effects of legislative tax changes, so revenue increases or decreases may not be attributable solely to the economy.
Results for Florida, Illinois, and Virginia reflect several years of newly revised data from the Nelson A. Rockefeller Institute of Government. The revision altered Virginia’s peak revenue quarter since the first quarter of 2006. Data may change further in future updates pending revisions by the U.S. Census Bureau and the Rockefeller Institute.
Pew’s analysis is based on data provided under license by the Nelson A. Rockefeller Institute of Government, which includes adjustments and corrections the institute made to the U.S. Census Bureau’s Quarterly Summary of State and Local Government Tax Revenue. Data are adjusted for inflation using the U.S. Bureau of Economic Analysis’ Implicit Price Deflators for Gross Domestic Product, accessed April 3, 2018.
Pew calculated the percent difference between each state’s quarterly tax revenue and its peak level since 2006, after adjusting for inflation and smoothing out seasonal fluctuations using a four-quarter moving average. Data are drawn from the U.S. Census Bureau, as adjusted by the Nelson A. Rockefeller Institute of Government to account for missing or imputed Census Bureau values. Pew adjusted for inflation using the U.S. Bureau of Economic Analysis’ gross domestic product implicit price deflator. Because of those adjustments, peak and low quarters in this data may not align with high and low points in some states’ tax collections in actual dollars. Notably, Pew’s post-2006 peaks for revenue in Arizona, California, Kentucky, Maine, Michigan, and Montana differ from their quarterly peak in unadjusted dollars by more than a year.
Total tax revenue reflects taxes, and licensing and compulsory fees collected by states. The Census Bureau defines taxes as all compulsory contributions exacted by a government for public purposes, except for retirement and social insurance assessments and unemployment compensation taxes. State governments report data for more than 25 types of taxes including personal income, sales, corporate income, motor fuel sales, motor vehicle license, and severance taxes. For more details on the definition of tax revenue, see the methodology from the Census Bureau.
Change from its peak: 0.0% (Peak quarter)
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