State Revenues Held Up Much Better Than Expected in Pandemic

The pandemic was supposed to be a catastrophe for state government tax revenues. As it turns out, for many states it was a non-event.

State government revenues declined by just four-tenths of a percentage point in the aggregate, according to data from the Urban Institute compiled by the Wall Street Journal.

Some states were hit hard because their economies are based around parts of the economy especially hard hit by the pandemic. The state with the biggest revenue decline was Alaska, where the economy is heavily dependent on oil extraction. Tax revenue fell nearly 40 percent in 2020 compared with a year earlier.

Other energy-producing states also saw big declines. North Dakota’s tax revenue fell 11.6 percent. Texas’ tax revenue fell 6.8 percent. Louisiana’s dropped 4.6 percent. Oklahoma tax revenue was down 3.8 percent. West Virginia’s tumbled 2.4 percent.

Tourist destinations also experienced sharp declines. Hawaii’s tax revenue dropped 11.6 percent. Nevada’s fell 9.1 percent. Florida’s 7.8 percent.

One outlier in the pattern is Oregon, where tax revenue dropped 11.7 percent. Its revenues are generated almost entirely by income taxes on individuals and businesses. Unlike many states, revenue did not bounce higher in the second half of the year. Its likely that the pandemic combined with massively destructive wildfires hurt the state’s tourism business.  Oregon also initially closed its state parks, never lifted its stay-at-home orders, and imposed a strict mask requirement.

Some states did surprisingly well. Idaho saw tax revenues come in 10.8 percent higher than the prior year. Utah and South Dakota tax revenue jumped 7.4 percent. Colorado revenue rose 6.6 percent. It’s likely that some of these states benefited by people moving in from crowded coastal cities in search of more room and open spaces. These states also have less-burdensome pandemic regulations. South Dakota’s budget likely benefited from Governor Kristi Noem’s refusal to impose strict lockdowns or require masks. Colorado does not require mask-wearing outdoors.  Utah Governor Gary Herbert initially only required masks in state-owned buildings and in public schools until November when it was expanded to cover anyone in a public setting. Idaho never imposed a state-wide mask requirement.

Despite this much better than expected revenue, the Democrat’s covid relief bill will spend $350 billion on aid to states and cities.