Market Snapshot: State Revenues

Market Snapshot: State Revenues

Much of the recent so-called “revenue wave” experienced by states was temporary in nature and will likely not be sustained. The boost in tax collections, driven in large part by federal stimulus during the pandemic, has now ended.

States might not have a good grasp on the nature of revenue swings, which can challenge policymakers’ abilities to forecast and manage budgets in the upcoming fiscal year and beyond.

Key questions posed by recent Pew research on the matter can put things into perspective: “For how long will revenue drop or stagnate? Do tax cuts or spending increases enacted in recent years rely on growth that may not materialize?”

Almost 38% of new tax revenue from 2020 to 2022 exceeded pre-pandemic levels. For some states such as Mississippi and New Mexico, for example, there may be a more significant adjustment as new growth reached over 90% above pre-pandemic trends. In 17 states, the potentially temporary revenue accounted for more than half of their total growth. However, in addition to tax cuts and spending increases, states also took measures such as paying down debt and strengthening reserves.

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