Noah Williams
Executive Summary:
While the early months of the COVID-19 pandemic put stress on the budgets of state and local governments around the country, their tax revenues have since rebounded. In addition, the federal government has already allocated substantial aid to these governments, which has more than offset the losses they have suffered. In particular, after nationwide state and local tax revenue fell by over 17% from the first to the second quarter of 2020, it bounced back strongly in the second half of the year and ended 2020 up 1.3% over 2019 – roughly constant in real terms. In addition, during 2020 the federal government sent $280 billion in transfers to these governments, and has already allocated an additional $120 billion in aid. These federal transfers led to growth of 8.9% in real revenue for state and local governments. In this brief, I document the recovery in state and local government total revenues and tax revenue, as well the distribution of revenue growth across states and discuss other sources of state fiscal support.