- State finances didn’t take as big of a hit during the pandemic as expected.
- In fact, half the states saw an increase in tax revenue, although some percent increases were small.
- Idaho saw the largest tax collection increase between 2019 and 2020 at 12.5%.
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As the coronavirus pandemic pummeled the economy starting in spring 2020, states and cities seemed increasingly vulnerable. Would they be forgotten in stimulus relief efforts? Was New York City truly dead?
But the recently enacted $1.9 trillion American Rescue Plan might provide a strong start for state and local governments, which also weren’t pummeled as hard as some feared.
In fact, a new Bank of America note anticipates “the municipal market should see a new golden decade of strong growth and strengthening credit quality.” They see a new credit cycle coming for the new decade, where “revenue for state and local governments will outgrow debt.”
The first step for ushering in this new decade came in the form of $350 billion in direct aid to state and local governments – a measure some state treasurers had been pushing for.
In places like New York City, the stimulus relief will go a long way towards bridging budget deficits and shortfalls; the city alone is set to receive $5.6 billion, according to a previous BofA note.
Infrastructure is up next as Democrats’ next big agenda item. It’s also part of BofA’s predicted boon for cities and states, as the infrastructure package “will put the muni market at the center and overall muni credit should benefit from it and remain on a path of continuous improvement over this next decade.”
Tax collection grew in Idaho in 2020, while Alaska saw a large decline
BofA is optimistic about the impact that those now well-funded – and tax-collecting – governments will have as the economy begins to improve.
“The economic boom in 2021-2030 will likely be led by rising leverage of state and local governments,” BofA wrote in the note.
Even amid the pandemic last year, tax collection grew in some parts of the nation. Based on Census data, BofA finds there was only a 1.0% decline in US state tax collection in 2020. Percent changes further vary among states.
The resilience of state finances comes after prior worries over revenues falling during the pandemic, especially as states saw “steep” drops in the first half of 2020. In a February analysis, Pew Trusts dug into the “historic state tax revenue drop,” and noted that the “unpredictability” of the pandemic made the future of revenue trends unclear.
The following map highlights the percent change in total taxes collected from 2019 to 2020 by state using quarterly state and local tax revenue data from the Census Bureau:
As the Bank of America authors noted, half the states had increases, while the other half and DC saw declines. On the one end, Idaho saw the largest year-over-year tax collection growth at 12.5%. Idaho was the only state to see a percent increase in the double digits. Some states saw minimal growth from a year earlier, including Iowa and Connecticut.
Alaska had the largest percent decline from a year earlier, where total tax collection in 2020 was 33.6% below tax collection in 2019. North Dakota has the second-largest decline at where the state collected 22.9% less than the $4.87 billion collected in 2019. Arizona had the smallest year-over-year decline at -0.6%.