The revenue from these tax returns will offer an indication of how badly the pandemic has hit state and city finances. State and municipal governments account for some 36% of all US government expenditure but, in most cases, they are not allowed to run deficits and so cut spending during a downturn.
- Cities, unlike states, are permitted to file for bankruptcy, as Detroit did in 2013 following the 2007-09 financial crisis.
- There may be concerns in the bond markets about municipalities that struggle to recover from the pandemic.
- More than half of all state tax revenue will continue to be used to fund spending on education and healthcare.