Strengthening Economy, Federal Aid, and Responsible Fiscal Management Helps Lead to Revenue Gains for Most States in Fiscal 2021

By Brian Sigritz posted 07-27-2021 09:55 AM

  

Most states saw revenue growth in fiscal 2021 primarily resulting from a strengthening national economy and federal stimulus programs. The revenue gains in fiscal 2021 were in contrast to fiscal 2020, when states saw revenues decline after nine consecutive years of growth. Overall, revenues have outperformed projections from earlier in the pandemic (when most states enacted their fiscal 2021 budgets). Several factors help explain recent improvements in states’ revenue outlooks, including: federal stimulus measures have put a lot of additional money into the economy, which helped to lessen state revenue losses; high-income earners have been relatively insulated from the pandemic’s economic effects, which has limited impacts on personal income tax collections; the types of consumption most curtailed by the pandemic comprise a relatively small portion of states’ sales tax bases; and the enabling of online sales tax collections following the U.S. Supreme Court decision in Wayfair v. South Dakota.

Fiscal 2021 revenue collections were also impacted by the shifting of the 2020 tax deadline from April 15 to July 15. According to NASBO’s Spring 2021 Fiscal Survey of States, nineteen states reported that they recognized these delayed revenues due to the deadline shift in fiscal 2021 instead of fiscal 2020, depressing fiscal 2020 revenues and leading to greater growth in fiscal 2021.

As a result of the preceding factors, most states saw strong year-over-year growth in overall tax collections for fiscal 2021, with a number of states reporting double digit increases. Many states reported that revenue from all major taxes, including sales, personal income, and corporate income, experienced gains in fiscal 2021 compared to fiscal 2020. In addition, most states saw revenues exceed earlier projections leading to budget surpluses. States have begun identifying possible uses of their fiscal 2021 budget surpluses, including: bolstering rainy day funds; restoring prior spending cuts; increasing education funding; additional roads funding; increasing the Medicaid trust fund; additional contributions to retirement funds; paying down future obligations for employee and retiree health care; providing more money to cover the cost of unemployment benefits; repaying federal loans for jobless benefits; refundable income tax credits; property tax relief; and other tax reforms.  NASBO’s 2021 Budget Processes in the States report details states’ legal requirements and policies for determining how to handle a general fund budget surplus in Table 15.

According to NASBO’s Spring Fiscal Survey of States, states were on track to collect 2.8 percent less over fiscal 2020 and fiscal 2021 compared to what they were expecting before the COVID-19 crisis, with 40 out of 50 states seeing declines compared to pre-pandemic projections over the two-year period. Although revenue improvements at the end of fiscal 2021 will lessen the number of states coming in below pre-COVID estimates, states to varying degrees continue to feel the impact of the pandemic. While discussing their fiscal 2021 revenue collections, states also stressed that prior budget balancing actions, strong fiscal management, and conservative budgeting helped lead to year-end surpluses. Finally, states noted the need to remain cautious moving forward and maintain responsible fiscal policies.

Forty-six states ended the fiscal year on June 30th. Below is a sampling of revenue totals from states that have published preliminary data for the full fiscal year and descriptions of how some states are using fiscal 2021 budget surpluses:

  • Arkansas’ total general revenue collections increased by 16.6 percent in fiscal 2021, or $1.1 billion, compared to fiscal 2020. Revenues were 17.8 percent, or $1.2 billion above the state’s April 2020 forecast. Personal income, sales, and corporate income taxes all exceeded projections, with individual collections bolstered by the shifting of the tax deadline in 2020. Arkansas ended fiscal 2021 with a record surplus of $945.7 million. According to the chief economic forecaster, the surplus resulted from two factors: national and state economic forecasts overestimated the size and shape of the pandemic recession; and the scale and stepwise nature of the federal stimulus programs during the year. Most of the surplus was transferred to various reserve funds, with the governor noting the surplus allows the state to increase reserves, increase the Medicaid trust fund, and continue coverage for low-income Arkansans.
  • Georgia’s net tax collections increased 13.5 percent in fiscal 2021, or $3.2 billion, compared to fiscal 2020. Personal income, sales and use, and corporate income taxes all saw growth in fiscal 2021, while motor fuel tax collections declined. The state is considering uses of the surplus, including additional deposits to the rainy day fund. The governor said the state remains on solid financial footing due to efforts to budget conservatively and protect both lives and livelihoods throughout a global pandemic.
  • Hawaii collected a total of $7.2 billion in taxes for fiscal 2020, well above a December 2020 forecast of $5.96 billion. The state saw large increases in income tax collections, while experiencing declines in the transient accommodations tax and the general excise tax on goods and services. Approximately $308 million was shifted from fiscal 2020 to fiscal 2021 due to the extension on 2020’s tax deadline from April to July; without the shift, fiscal 2021 tax collections would have been down slightly from the year before. The governor said that he will look at ways to restore prior spending cuts. The governor also discussed directing the additional revenue to paying down future obligations for employee and retiree health care, providing more money to cover the cost of unemployment benefits for workers, and repaying a federal loan for jobless benefits.
  • Idaho is on track to end fiscal 2021 with a surplus of over $800 million. The state is awaiting final June figures, but through the first eleven months of the fiscal year individual income taxes, sales taxes, and corporate income taxes were all well ahead of projections. The state is expected to direct some of the surplus to one-time funding such as capital and infrastructure projects, while also considering increased education funding and tax cuts. Idaho’s Division of Financial Management Administrator noted that Idaho will have the ability to make some substantial investments, but at the same time needs to be careful not to make bad long-term decisions with short-term news.
  • Illinois’ base receipts to the General Revenue Fund increased 17.8 percent in fiscal 2021, or $6.8 billion, compared to fiscal 2020. Individual income, sales, and corporate income taxes all exceeded projections. Revenues were bolstered by an influx of federal funds, the economic recovery, and the delayed tax deadline. Approximately $1.3 billion of the growth was the result of the 2020 tax filing deadline being pushed back to July due to the pandemic.
  • Indiana ended fiscal 2021 with a cash reserve of $3.9 billion. Sales tax, individual income tax, and corporate tax revenue all exceeded expectations. Officials noted that year-to-year comparisons are difficult since the state was in a pandemic in 2020 and there were also some tax deferrals. The state is poised to make an excess reserve transfer of $1.1 billion. The transfer will be split between retirement funding and a refundable income tax credit; the move is required by law when Indiana’s state surplus reaches a certain level.
  • Iowa’s general fund receipts increased 16.3 percent in fiscal 2021, or $1.14 billion, compared to fiscal 2020. Personal income taxes, sales and uses taxes, and corporate income taxes all exceeded projections. General fund receipts were impacted by the extension of the filing due date for tax returns in 2020, and economic responses to the COVID-19 outbreak. Officials noted the increase would likely be adjusted downward by several hundred million by September 30th, due to the income tax deadline and other adjustments.
  • Kansas’ total tax collections increased 26.4 percent in fiscal 2021, or $1.86 billion, compared to fiscal 2020. Total tax collections were 9.3 percent, or $758.1 million, over the estimate. Individual income tax collections, corporate income tax collections, and excise taxes were all higher than projections. The state is likely to begin fiscal 2022 with cash reserves of approximately $1.9 billion, the highest total ever. The state’s Secretary of Revenue said part of the surplus is due to capital gains from the stock market, and overall corporate profits, exceeding expectations. The governor said the state will continue to prioritize pro-growth policies that support Kansas businesses and families as the state transitions to the next fiscal year.
  • Kentucky’s general fund receipts grew by 10.9 percent in fiscal 2021, the highest annual growth rate in 26 years. Actual revenues exceeded the official estimate by $1.1 billion with all of the nine major revenue sources exceeding projections. Kentucky noted the effects of the pandemic made forecasting difficult due to the uncertainty surrounding the impact the virus would have on the country as well as the Commonwealth. The State Budget Director also added the state’s economy has been recovering at a pace greater than anticipated due to vaccination efforts, federal government aid to individuals and businesses, and employment growth. The $1.1 billion revenue surplus will be deposited into Kentucky’s rainy day fund, bringing it up to nearly $1.9 billion, or over 16 percent of general fund spending.
  • Maine deposited an additional $223.6 million into the state’s rainy day fund; the deposit was enabled from surplus revenue for fiscal 2021. The rainy day fund now stands at $491.9 million, a record high. The governor noted the surplus revenue for fiscal 2021 was attributable to the state’s solid financial standing, prudent management of spending during the pandemic, and federal support for Maine’s economy and people.
  • Minnesota’s net general fund receipts for fiscal 2021 are estimated to be 11.2 percent, or $2.68 billion, higher than a February 2021 forecast. Net receipts from all major taxes exceeded the forecast. Revenues have been bolstered by continued fiscal and monetary support; the rising share of the population being vaccinated; and business reopening. The governor said that moving forward, the state will continue to drive economic success by supporting small businesses, working families, and students.
  • Mississippi’s fiscal 2021 total revenue collections were 15.9 percent, or $924.5 million, above fiscal 2020’s level. Total revenue collections were 18.45 percent, or $1.05 billion above estimate. The increase in tax collections was driven in part by people shopping online during the coronavirus pandemic. The sales tax, use tax, individual income tax, and corporate income tax all saw gains in fiscal 2021.
  • Missouri’s net general revenue collections for fiscal 2021 increased 25.8 percent, rising from $8.93 billion in fiscal 2020 to $11.24 in fiscal 2021. Individual income tax collections, sales and use tax collections, and corporate income and corporate franchise tax collections all rose in fiscal 2021. Part of the revenue growth was attributable to the shifting of the tax deadline in 2020, which contributed to a decline in 2020 revenues and added to the rise in fiscal 2021 revenues.
  • Nebraska’s net general fund receipts for fiscal 2021 were 19.2 percent, or $958 million, above forecast. Individual income, sales and use, and corporate income were all above projections. The governor said that thanks to legislation he signed into law last year, higher state revenues have created record property tax relief for farmer, ranchers, homeowners, and small businesses.
  • New Hampshire’s total receipts were up 19.4 percent compared to fiscal 2020. Fiscal 2021 cash receipts were 10.5 percent, or $279.7 million, above projections. All taxes except for the tax on restaurant meals and hotel rooms exceeded projections in fiscal 2021. Part of the $280 million surplus will be directed to help communities support spending for schools. The governor said the state’s pro-growth and pro-jobs policies helped contribute to the state’s strong revenue growth.
  • North Dakota’s general fund revenues for the fiscal 2019-2021 biennium were approximately $5.7 billion according to preliminary figures, or nearly $320 million more than projected. The sales tax, individual income tax, and corporate income tax all exceeded forecast. The state is estimated to have an ending balance of over $1 billion, with final revenue figures expected in August. The Office of Management and Budget Director said federal stimulus payments in 2020 helped maintain strong consumer spending, which was reflected in state sales tax collections.
  • South Dakota’s total general fund revenues for fiscal 2021 finished 15.7 percent, or $274.2 million, greater than fiscal 2020. Sales and use tax, lottery, contractor’s excise tax, and unclaimed property receipts all saw gains in fiscal 2021. Fiscal 2021 general fund revenues were 3.2 percent, or $62.0 million, greater than the legislative adopted estimate. In addition, expenditures for fiscal 2021 were approximately $23.9 million lower than budgeted, resulting in a $85.9 million surplus. The $85.9 million surplus was transferred into the state’s budget reserves, as required by law; total reserves now stand at $302 million. The governor noted the state’s low unemployment rate, strong labor force recovery, and terrific tourism numbers helped generate historic revenues for the state.
  • Virginia’s total revenue collections increased 14.5 percent in fiscal 2021, ahead of the forecast of 2.7 percent growth. Total general fund revenue collections exceeded projections by 11.7 percent, or $2.6 billion, for fiscal 2021. The $2.6 billion surplus is the largest in the state’s history. All major general fund revenue sources exceeded their forecast for the year. The Secretary of Finance said they were encouraged that for the year payroll withholding and retail sales taxes increased 6.4 percent, signifying the state’s underlying economic foundation is strong.
  • West Virginia’s fiscal 2021 general revenue fund collections were 11.0 percent above prior year receipts. The state saw revenue growth from all major components of tax collections including personal income tax, consumer sales tax, corporation net income tax, and severance tax collections. Total fiscal 2021 revenue collections were $458 million above the pre-pandemic revenue estimate, and the state ended the year with a $413 million revenue surplus. In a pair of special sessions, the legislature approved directing $150 million of the surplus for secondary roads and $253.8 million for a variety of projects and initiatives, while the remaining surplus will be directed to the rainy day fund.