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State and Local Government Finances in the COVID-19 Era

Author

Listed:
  • Tracy Gordon
  • Lucy Dadayan
  • Kim Rueben

Abstract

The COVID-19 pandemic and resulting recession put enormous strain on state and local government budgets. State personal income and sales tax revenues, which together account for more than 70 percent of general own-source funds, fell further and faster than in the depths of the Great Recession. Although some personal income tax losses stemmed from filing deadline extensions and would be recovered later in the year, states in particular also contended with increased direct and indirect costs stemming from COVID-19. As in prior downturns, the federal government stepped in to help states and localities facing massive gaps between projected revenues and spending, but aid provided thus far has been incommensurate to the scale and timing of the challenge. This paper provides a point-in-time description of state and local government finances as of July 2020, the start of a new fiscal year in most states and localities. It also assesses federal relief compared to prior recessions and offers a few directions for reform.

Suggested Citation

  • Tracy Gordon & Lucy Dadayan & Kim Rueben, 2020. "State and Local Government Finances in the COVID-19 Era," National Tax Journal, National Tax Association;National Tax Journal, vol. 73(3), pages 733-758, September.
    • Handle: RePEc:ntj:journl:v:73:y:2020:i:3:p:733-758
    DOI: 10.17310/ntj.2020.3.05
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    References listed on IDEAS

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    Cited by:

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    2. Clemens, Jeffrey & Veuger, Stan, 2021. "Politics and the distribution of federal funds: Evidence from federal legislation in response to COVID-19," Journal of Public Economics, Elsevier, vol. 204(C).
    3. Ivanov, Ivan T. & Zimmermann, Tom, 2024. "The “Privatization” of municipal debt," Journal of Public Economics, Elsevier, vol. 237(C).
    4. Ivanov, Ivan T. & Zimmermann, Tom & Heinrich, Nathan W., 2022. "Limits of disclosure regulation in the municipal bond market," CFR Working Papers 22-05, University of Cologne, Centre for Financial Research (CFR).
    5. Sławomira Kańduła & Joanna Przybylska, 2021. "Financial instruments used by Polish municipalities in response to the first wave of COVID-19," Public Organization Review, Springer, vol. 21(4), pages 665-686, December.
    6. Timothy J. Goodspeed, 2022. "Coping with extreme events: On solving decentralized budgetary crises," Working Papers. Collection A: Public economics, governance and decentralization 2210, Universidade de Vigo, GEN - Governance and Economics research Network.
    7. MATEI Elena-Florentina, 2020. "The Impact Of The Covid-19 Crisis On Public Finances Compared To The Previous Crisis," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 204-212, December.
    8. Qiongzhi Liu & Jing Ren, 2023. "Local Fiscal Pressure and Enterprise Environmental Protection Investment under COVID-19: Evidence from China," Sustainability, MDPI, vol. 15(6), pages 1-20, March.
    9. Jeffrey Clemens & Philip G. Hoxie & Stan Veuger, 2022. "Was Pandemic Fiscal Relief Effective Fiscal Stimulus? Evidence from Aid to State and Local Governments," NBER Working Papers 30168, National Bureau of Economic Research, Inc.
    10. Piotr Korneta & Katarzyna Rostek, 2021. "The Impact of the SARS-CoV-19 Pandemic on the Global Gross Domestic Product," IJERPH, MDPI, vol. 18(10), pages 1-12, May.
    11. Green, Daniel & Loualiche, Erik, 2021. "State and local government employment in the COVID-19 crisis," Journal of Public Economics, Elsevier, vol. 193(C).

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