While America’s real GDP fell in 2020, states and local tax receipts actually increased—once you add in federal aid, revenues actually grew by nearly 10 percent. As their costs from fighting the pandemic grew and layoffs loomed, Congress rightly stepped up to help. There’s been $360 billion in direct relief for Covid-19 and hundreds of billions more in indirect aid—all told, Washington sent more than $1 trillion to states and localities last year.
Then there are states like Hawaii, where cratering tourism has left the state in a $1.8 billion budget hole, with tax revenues not expected to recover until 2024. Florida and Nevada are also missing their frequent flyers after tax receipts plummeted by 7.9 percent and 13 percent, respectively. States dependent on taxing energy and mining, such as Alaska, North Dakota, Texas and West Virginia, have seen their own devastating budget hits. And sales-tax-dependent states like New York wound up in worse shape than those reliant on less volatile revenue streams like Vermont, where 32 percent of revenues come from property taxes. In all, 26 states saw their tax revenues decline in the first 10 months of 2020.
But every state’s been a winner this past year with the federal government, whose aid to states and localities rose an astonishing 42 percent. What might have been a $331 billion budget shortfall due to COVID-19 instead came to a $165.5 billion dip, according to Moody’s, and that’s before counting $79 billion in state rainy day funds. Federal aid also propped up businesses and households, which led to economic activity and hiring that boosted state and local tax revenues, while also hiking taxable unemployment benefits. Having the Federal Reserve goose the stock and housing markets with super-low interest rates didn’t hurt either.