State government tax revenues showed year-over-year growth at 4.2 percent in the first quarter of 2020. However, preliminary data indicate double-digit declines in state government tax revenues in the second quarter of 2020 because of the COVID-19 pandemic and government responses.

States’ economic performance has changed dramatically since then as the pandemic threw the economy into turmoil. Most economic indicators, such as GDP, unemployment rate, employment, and personal consumption spending, reported the worst performance on record in the second quarter of 2020. State officials are now faced with a challenge of addressing large budget shortfalls in a dire economic environment.

The damage of the COVID-19 pandemic on state and local governments and their budgets is already substantial, and, sadly, this is just the beginning of the fiscal and economic pain ahead.