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U.S. States Face Biggest Cash Crisis Since the Great Depression

U.S. States Face Biggest Cash Crisis Since the Great Depression


The drop in tax revenue has led to a total shortfall expected in the hundreds of billions of dollars—greater than 2019’s K-12 education budget for every state combined, or more than twice the amount spent that year on state roads and other transportation infrastructure
By Heather Gillers and Gunjan Banerji
Oct. 28, 2020 2:45 pm ET


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Connecticut acted fast. Social distancing, lockdowns and testing slashed Covid-19 cases in the spring.

But when Comptroller Kevin Lembo opened an email from his budget director on April 15, it was clear the state’s quick action to contain the pandemic hadn’t insulated its finances.

“We hit the brakes so quickly on the economy that we went through the windshield,” his deputy wrote.


Connecticut is projecting a total revenue decline of $8.4 billion through the 2024 budget year—more than twice the rainy day fund built up over the past three years.

“All you can do is grip the bar as tight as you can, make the smartest decisions you can in real time, plan for the worst and be surprised at something less than worst,” said Mr. Lembo.

U.S. states are facing their biggest cash crisis since the Great Depression.

Nationwide, the U.S. state budget shortfall from 2020 through 2022 could amount to about $434 billion, according to data from Moody’s Analytics, the economic analysis arm of Moody’s Corp. The estimates assume no additional fiscal stimulus from Washington, further coronavirus-fueled restrictions on business and travel, and extra costs for Medicaid amid high unemployment.

That’s greater than the 2019 K-12 education budget for every state combined, or more than twice the amount spent that year on state roads and other transportation infrastructure, according to the National Association of State Budget Officers.

Deficits have already prompted tax hikes and cuts to education, corrections and parks. State workers are being laid off and are taking pay cuts, and the retirement benefits for police, firefighters, teachers and other government workers are under more pressure.

Even after rainy day funds are used, Moody’s Analytics projects 46 states coming up short, with Nevada, Louisiana and Florida having the greatest gaps as a percentage of their 2019 budgets. Louisiana said it didn’t expect its shortfall to be as large as Moody’s projected.

“There is no real model for a crisis like this,” said New Jersey Treasurer Elizabeth Maher Muoio. “It’s going to be tough for the next couple years.”

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Harvey Yan

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