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COVID-19 has triggered a severe state budget crisis. While the full magnitude of this crisis is not yet clear, state revenues are declining precipitously and costs are rising sharply with many businesses closed and tens of millions of people newly unemployed. Due to the economy’s rapid decline, official state revenue projections generally do not yet fully reflect the unprecedented fiscal impact of the coronavirus pandemic. In many cases, states do not even know how much their revenues have already fallen, in part because they’ve extended deadlines for filing sales and income tax payments that otherwise would have been due in recent months. Executive and legislative fiscal offices in many states are analyzing new economic projections and producing initial estimates of the damage before state legislatures meet in regular or special sessions to address shortfalls. Most states have released initial or preliminary estimates.

The Center of Budget and Policy Priorities (CBPP) estimates that state budget shortfalls will ultimately reach almost 10 percent in the 2020 fiscal year (which ended on June 30 in most states) and over 20 percent in the current fiscal year (2021) based on recent economic projections.

The reality is that the pandemic has caused the revenue of states, localities, tribal nations, and U.S. territories to collapse, creating an extraordinary fiscal crisis. Based on past recessions and economic forecasts from the Federal Reserve and Congressional Budget Office, CBPP projects that states alone face shortfalls totaling about $555 billion through fiscal year 2022.

Because most state and local governments–unlike the federal government–must balance their budgets, the only effective way out of this fiscal crisis is through federal aid.

States and localities already have furloughed or laid off some 1.5 million workers. Without substantially more aid, they will permanently lay off more of these workers and cut other jobs for teachers, health care workers, and others — making the recession worse — and cut services that help people who’ve lost their jobs and others struggling due to the pandemic and its harmful impacts on families and communities.

Read the detailed background research and blogs from the Center of Budget and Policy Priorities:

States Continue to Face Large Shortfalls Due to COVID-19 Effects (Updated July 7 ,2020)
States Are Using Federal Fiscal Aid But Need Substantially More (August 3, 2020)
States Grappling With Hit to Tax Collections (August 12, 2020)