State budgets recover from pandemic with federal help

Significance

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.

Impacts

• 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.