Fiscal Conditions During the COVID-19 Pandemic in Selected States (GAO-21-562)
Summary
A GAO report to congressional committees, GAO-21-562, dated July 2021, on the fiscal conditions of state and local governments during the COVID-19 pandemic in selected states. It reports that state and local government revenues from individual, corporate and sales taxes declined about $61 billion in the second quarter of 2020 compared to the second quarter of 2019 and rebounded in the third and fourth quarters of 2020. State and local government expenditures remained largely flat throughout 2020, as governments increased spending in some areas but limited it in others. It notes that nearly all states implemented policies that limited certain economic activities to slow the pandemic.
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United States Government Accountability Office
Report to Congressional Committees
STATE AND LOCAL
July 2021
GOVERNMENTS
Fiscal Conditions
During the COVID-19
Pandemic in Selected
States
GAO-21-562
July 2021
STATE AND LOCAL GOVERNMENTS
Fiscal Conditions During the COVID-19 Pandemic in
Selected States
Highlights of GAO-21-562, a report to
congressional committees
Why GAO Did This Study What GAO Found
The COVID-19 pandemic and related State and local government revenues from individual, corporate, and sales taxes
policies had a rapid and severe effect declined about $61 billion in the second quarter of 2020 compared to the second
on the U.S. economy, including state quarter in 2019 and rebounded in the third and fourth quarters of 2020. State and
and local governments. To limit social local government expenditures remained largely flat throughout 2020 as state
contact and slow the spread of the and local governments increased expenditures in some areas but limited
pandemic, nearly all states spending in other areas.
implemented policies that limited
certain economic activities. Relief laws, State and Local Government Revenues, First Quarter 2019 through Fourth Quarter
including the CARES Act, provided 2020
appropriations to state and local
governments to address the public
health and economic threats posed by
the pandemic.
The CARES Act includes a provision
for GAO to report on COVID-19
pandemic oversight efforts. This report
examines (1) changes in revenues and
expenditures for the state and local
government sector since the onset of
the pandemic, (2) changes in revenues
and expenditures for selected states,
(3) actions selected states took to
address changes in revenues and
expenditures, and (4) factors that
affected the selected states’ capacity
to implement federal programs.
To conduct this work, GAO analyzed
state and local government revenue
and expenditure data from the U.S.
Census Bureau and the Bureau of
Economic Analysis’s National Income Among the eight states GAO selected, those highly reliant on tax revenues from
and Product Accounts. GAO analyzed the energy and tourism and leisure sectors were particularly vulnerable to the
state budget and other relevant economic effects of the pandemic. Other states saw varying levels of revenue
documents and interviewed budget declines based on factors such as the duration of business shutdowns. Some
officials in eight states that represented selected states revised their revenue forecasts downward as the pandemic
a range of factors, including number of progressed and some states’ revenue declines were not as severe as initially
COVID-19 cases, revenue sources, projected by the revised revenue forecasts.
and geographic region. GAO also
Most selected states increased public health and safety expenditures and cut
interviewed organizations that
represent state and local governments spending in other areas. Six states took actions aimed at reducing spending,
and experts that provide financial and including hiring freezes or furloughs. Half of the selected states used reserve
credit risk information to state and local funds to help balance their budgets. Officials from most states reported that their
governments. proposed budgets did not include tax or fee increases.
Five of the eight selected states used the federal assistance they received,
including Coronavirus Relief Funds (CRF), to help bolster their states’ capacity to
View GAO-21-562. For more information,
contact Michelle Sager at (202) 512-6806 or implement federal programs. In particular, states used CRF to help manage the
SagerM@gao.gov. increased demand for services due to COVID-19, such as administering
unemployment insurance benefits.
United States Government Accountability Office
Contents
Letter 1
Background 4
The State and Local Sector Saw an Initial Decline and
Subsequent Rebound in Revenues, While Expenditures
Remained Largely Flat 5
Selected States Experienced Varying Degrees of Decreased
Revenues and Increased Expenditures 13
Most Selected States Took Actions to Address Pandemic-related
Changes in Revenues and Expenditures 20
Most Selected States Cited Federal Assistance as a Factor That
Helped Bolster Capacity to Implement Federal Programs 24
Appendix I Objectives, Scope, and Methodology 30
Appendix II GAO Contact and Staff Acknowledgments 35
Tables
Table 1: Selected State Actions to Reduce Spending in Response
to the Pandemic 21
Table 2: Characteristics of Eight States Selected for GAO Review 32
Figures
Figure 1: State and Local Government Own-Source Tax
Revenues (in millions), First Quarter 2019 Through
Fourth Quarter 2020 6
Figure 2: State and Local Government Expenditures (annualized
in billions), First Quarter 2019 Through Fourth Quarter
2020 10
Figure 3: Percent Change in the Selected State’s Tax Revenues
Collected in 2020 Compared to Same Quarter 2019 14
Page i GAO-21-562 State And Local Governments
Abbreviations
BEA Bureau of Economic Analysis
BLS U.S. Bureau of Labor Statistics
Bureau U.S. Census Bureau
CDC Centers for Disease Control and Prevention
COVID-19 Coronavirus Disease 2019
CRF Coronavirus Relief Fund
GDP gross domestic product
FFCRA Families First Coronavirus Response Act
FMAP Federal Medical Assistance Percentage
NASBO National Association of State Budget Officers
NIPA National Income and Product Accounts
PMO Project Management Office
Treasury Department of the Treasury
UI Unemployment Insurance
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Page ii GAO-21-562 State And Local Governments
Letter
441 G St. N.W.
Washington, DC 20548
July 15, 2021
Congressional Committees
The Coronavirus Disease 2019 (COVID-19) pandemic and related
policies that limited certain economic activities had a rapid and severe
effect on the U.S. economy, including state and local governments. State
and local government revenues decreased and certain expenditures
increased as these governments grappled with reduced economic activity
and increased demand for public health services in 2020.
To limit social contact and slow the spread of the COVID-19 pandemic,
nearly all states implemented policies that had the effect of limiting certain
economic activities. Widespread business closures led to immediate and
substantial job losses and resulted in reduced revenue. Reduced
economic activity included declines in industrial production, retail sales,
and personal income. While these areas of the economy have since
recovered to varying degrees, state and local governments faced
immediate fiscal pressures.
Four COVID-19 relief laws, including the CARES Act, were enacted as of
September 2020 to address the public health and economic effects posed
by the COVID-19 pandemic. 1 These laws provided an estimated $335
billion in funds to agencies for assisting U.S. states, localities, territories,
and tribal governments in their responses to the COVID-19 pandemic.
The CARES Act appropriated $150 billion to the Department of the
Treasury (Treasury) for the Coronavirus Relief Fund (CRF) for direct
assistance to states, localities, territories, and tribal governments for
necessary expenses incurred due to the COVID-19 public health
1Paycheck Protection Program and Health Care Enhancement Act, Pub. L. No. 116-139,
134 Stat. 620 (2020); CARES Act, Pub. L. No. 116-136, 134 Stat. 281 (2020); Families
First Coronavirus Response Act, Pub. L. No. 116-127, 134 Stat. 178 (2020) (FFCRA); and
Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, Pub. L.
No. 116-123, 134 Stat.146 (2020).
Page 1 GAO-21-562 State And Local Governments
emergency. 2 Under the CARES Act, CRF payments are allocated to the
50 states and eligible localities based on their populations, with no state
receiving less than $1.25 billion. 3 More recently, the American Rescue
Plan Act of 2021 appropriated $362 billion to Treasury in direct aid to
states, localities, territories, and tribal governments through the
Coronavirus State and Local Fiscal Recovery Fund to address the
continued impact of COVID-19 on the economy, public health, state and
local governments, individuals, and businesses. 4
The CARES Act includes a provision for us to report on our ongoing
monitoring and oversight efforts related to the COVID-19 pandemic. 5 This
report examines (1) what is known about changes in revenues and
expenditures for the state and local government sector since the onset of
the pandemic, (2) how revenues and expenditures have changed since
the onset of the pandemic for selected states, (3) what actions selected
states have taken to address changes in revenues and expenditures, and
(4) what factors have affected the selected states’ capacity to implement
federal programs.
2Pub. L. No. 116-136, § 5001, 134 Stat. at 501, codified at 42 U.S.C. § 801(c). The
CARES Act provided more than $2 trillion in emergency assistance and health care
response for individuals, families, and businesses affected by COVID-19. As required by
the CARES Act, CRF recipients may use the funds to cover costs incurred between March
1, 2020, and December 30, 2020, and that had not accounted for in their most recent
budget prior to the act’s enactment. This time-frame was extended to December 31, 2021
by the Consolidated Appropriations Act, 2021. Pub. L. No. 116-260, div. N. tit. X, § 1001,
134 Stat. 1182, 2145 (2020).
3Pub. L. No. 116-136, § 5001, 134 Stat. at 502, codified at 42 U.S.C. § 801(c).
Populations as measured by the Census Bureau in 2019. Localities with populations of at
least 500,000 may opt to receive disbursements directly from the Department of the
Treasury. These direct disbursements are then deducted from the state’s allocation, and
are equal to the product of (1) the state or territory allocation amount, (2) the share of the
state or territory population served by the local government, and (3) 45 percent.
4American Rescue Plan Act of 2021, Pub. L. No. 117-2, 135 Stat. 4 (2021). Recipients
can use the funds to cover allowable costs incurred by December 31, 2024. We will review
actions federal agencies and state and local governments have taken in response to the
act in future reporting.
5Pub. L. No. 116-136, § 19010, 134 Stat. at 579-81. We regularly issue government-wide
reports on the federal response to COVID-19. For the latest report, see GAO, COVID-19:
Sustained Federal Action Is Crucial as Pandemic Enters Its Second Year, GAO-21-387
(Washington, D.C.: Mar. 31, 2021). Our next government-wide report will be issued on
July 19, 2021, and will be available on GAO’s website at https://www.gao.gov/coronavirus.
Page 2 GAO-21-562 State And Local Governments
To describe what is known about changes in revenues and expenditures
for the state and local government sector, we analyzed data on states’
and localities’ revenues and expenditures from the U.S. Census Bureau
(Bureau) and expenditures from the Bureau of Economic Analysis’s
(BEA) National Income and Product Accounts (NIPA) for 2019 and 2020.
For purposes of this review, we determined that the Bureau and BEA
NIPA data were sufficiently reliable for our analysis of state and local
government revenues and expenditures. Our data reliability assessment
included reviewing relevant documentation and reviewing the data to
identify obvious errors or outliers.
To identify how selected states’ revenues and expenditures have
changed after the onset of the pandemic, actions they took to address
these changes, and the factors that affected the selected states’ capacity
to implement federal programs, we interviewed budget officials in eight
states. 6 Those states included:
• Arizona
• Florida
• Michigan
• Nevada
• New Hampshire
• North Carolina
• North Dakota
• Pennsylvania
Combined, these states represent about 20 percent of the U.S.
population. We selected these states on the basis of a number of factors,
including: range in the number of reported COVID-19 cases per 100,000
as of October 2020, predominant source of tax revenue in the state, and
geographic region. A more detailed description of our scope and
methodology is included in appendix I.
We conducted this performance audit from August 2020 to July 2021 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
6For purposes of this report, we define state capacity in terms of organizational, human
capital, and financial capacity. A more detailed discussion of capacity is included in
appendix I.
Page 3 GAO-21-562 State And Local Governments
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
The nation has experienced the spillover effects of a pandemic on the
Background economy as millions have lost their jobs due to stay-at-home orders and
business closures aimed at “flattening the curve,” or taking the burden off
the health care system by reducing infections to a manageable level. We
recently reported that, as of February 2021, indicators for some areas of
the country’s economy supported by the federal pandemic response had
returned to pre-pandemic levels while other areas remained far from their
pre-pandemic conditions. 7 Improvements in bond market indicators, for
example, suggest that corporate borrowers and state and local
governments had access to credit that was somewhat improved
compared to before the pandemic.
State and local government revenues partly depend on the overall
economy, and actions to stem the spread of the virus drastically reduced
economic activity. In the second quarter of 2020 with the onset of the
pandemic, gross domestic product (GDP) declined at an annual rate of
31.4 percent. Recent data show that GDP grew at an annual rate of 6.4
percent in the first quarter of 2021 to a level that was about 1 percent
smaller than the size of the economy in the fourth quarter of 2019.
Prior to the COVID-19 pandemic, state and local governments
experienced overall growth in revenues and expenditures during the past
20 years. As we previously reported, from 1998 to 2018, inflation-adjusted
state and local government revenues increased from about $1.6 trillion in
1998 to about $2.6 trillion in 2018. At the same time, we and the National
Association of State Budget Officers (NASBO) reported that median state
7See GAO, COVID-19: Sustained Federal Action Is Crucial as Pandemic Enters Its
Second Year, GAO-21-387 (Washington, D.C.: Mar. 31, 2021).
Page 4 GAO-21-562 State And Local Governments
rainy day fund balances as a percentage of total general fund
expenditures increased to their highest level in the last 20 years in 2018. 8
In the aggregate, state and local governments experienced revenue
The State and Local declines after the onset of the pandemic during the second quarter of
Sector Saw an Initial 2020. As shown in figure 1, state and local government own-source tax
revenues decreased by $61.3 billion in the second quarter of 2020,
Decline and compared to the same period in 2019. 9 In particular, revenues from
Subsequent Rebound individual income, corporate income, and sales tax saw a significant
decline in the second quarter of 2020 (April through June), compared to
in Revenues, while the second quarter in 2019, but rebounded in the third and fourth quarters
Expenditures of 2020. 10 Additionally, while property taxes declined in the second
quarter of 2020, their rate of decline was significantly lower than other
Remained Largely sources of own-source tax revenue such as individual income and sales
Flat taxes.
8Rainy day funds include state budget stabilization or reserve funds that state
governments may use to supplement general fund spending during a revenue downturn or
other unanticipated shortfall. Although every state has some type of rainy day fund,
deposit and withdrawal rules vary considerably. For additional information, see GAO,
Intergovernmental Issues: Key Trends and Issues Regarding State and Local Sector
Finances, GAO-20-437 (Washington, D.C.: Mar. 23, 2020). See also NASBO, Budget
Processes in the States (Washington, D.C.: Spring 2021).
9Own-source revenue refers to the share of revenue generated from different types of
state and local taxes.
10Based on the U.S. Census Bureau’s Quarterly Summary of State & Local Government
Tax Revenue. We used the Bureau’s four categories of tax data as part of our analysis of
the state and local government sector, which included the four categories of own-source
revenue: (1) sales; (2) property; (3) corporate income; and (4) individual income. The
Bureau’s data did not include all types of own-source revenue sources, such as excise
taxes or user fees, or other types of revenue, such as federal grants to state and local
governments, including COVID-19 pandemic-related funding.
Page 5 GAO-21-562 State And Local Governments
Figure 1: State and Local Government Own-Source Tax Revenues (in millions), First
Quarter 2019 through Fourth Quarter 2020
Revenues Declined and The changes in state and local government tax revenues identified in
Then Rebounded figure 1 varied by source and were driven by a number of factors:
Individual income taxes. State and local government revenue from
individual income taxes decreased 30.5 percent ($35.3 billion) in the
second quarter of 2020, followed by a 99.7 percent ($80.1 billion)
increase in the third quarter of 2020. 11 According to Moody’s Analytics
and other organizations, income tax revenue from high-income earners
11According to the Tax Foundation, forty-one states and the District of Columbia impose
broad-based taxes on individual income.
Page 6 GAO-21-562 State And Local Governments
remained strong during the pandemic, supporting states that rely on
income tax revenue from high-income earners. Specifically, higher-
income earners—who pay more income tax than lower income earners—
were able to telework throughout the pandemic, while lower-wage
earners, largely in service industries, experienced significant job losses.
Further, federal assistance provided to state and local governments
through the CARES Act increased and expanded unemployment
insurance benefits for those who lost their jobs due to the pandemic, and
unemployment benefits are normally subject to tax under federal and
state law. 12 In addition, nearly all state governments that assess an
individual income tax joined with the Internal Revenue Service in
extending their income tax filing due dates from April 2020 to July 2020. 13
This action may have contributed to a shift in income tax revenue
collections, which are normally collected in the first or second quarter of
2020 to the third quarter of 2020. Between 2019 and 2020, state and local
government revenue from individual income taxes increased 4.3 percent,
from $459 billion in 2019 to $479 billion in 2020.
Sales taxes. State and local government revenue from sales taxes
decreased 13.9 percent ($15.5 billion) in the second quarter of 2020,
reflecting a decline in retail sales at the height of the pandemic during a
time of mandatory or voluntary business closures and stay-at-home
mandates. 14 By the third quarter of 2020, revenue from state and local
sales tax rebounded, reflecting an increase of 17.9 percent ($17.2 billion).
According to the Tax Foundation and other experts, consumer spending
12Pub. L. No. 116-136, tit. II, 134 Stat. at 313. In addition, the American Rescue Plan Act
of 2021 provides for an allowance of $10,200 of unemployment insurance compensation
to be tax free in 2020, if an individual’s adjusted gross income is less than $150,000. Pub.
L. No. 117-2, § 9042, 135 Stat. at 122.
13IRS Notice 2020-23, 2020-18 IRB 742 (Apr. 27, 2020). Notice 2020-23 amplified relief
provided in Notice 2020-18 and Notice 2020-20. 2020-15 IRB 590 (Apr. 6, 2020); and
2020-16 IRB 660 (Apr. 13, 2020). The Secretary of the Treasury has statutory authority to
postpone filing and payment deadlines for taxpayers affected by a “federally declared
disaster,” which is any disaster determined by the President to warrant assistance by the
federal government under the Robert T. Stafford Disaster Relief and Emergency
Assistance Act. 26 U.S.C. §§ 7508A, 165(i)(5)(A). The President’s March 13 determination
instructed the Secretary of the Treasury to provide relief from tax deadlines to Americans
who have been adversely affected by the COVID-19 emergency, as appropriate, pursuant
to 26 U.S.C. § 7508A(a).
14According to the Tax Foundation, forty-five states and the District of Columbia collect
statewide sales taxes, while local sales taxes are collected in 38 states.
Page 7 GAO-21-562 State And Local Governments
significantly shifted to remote online sales and thereby contributed to
sales tax revenues.
Moody’s Analytics, for example, noted that as businesses became subject
to mandatory closures, consumer spending remained resilient as
taxpayers shifted their purchases online, and that, with recent court
decisions affecting tax law changes, more of those purchases were
subject to sales tax. For example, as a result of the Supreme Court’s
ruling in South Dakota v. Wayfair, Inc., states can require out-of-state
sellers to collect and remit sales taxes on purchases made from those
out-of-state sellers, even if the seller does not have a substantial physical
presence in the taxing state. 15 Between 2019 and 2020, revenue from the
sector’s sales taxes decreased 0.2 percent, from $438 billion in 2019 to
$437 billion in 2020.
Property taxes. State and local government revenue from property taxes
decreased 3.5 percent ($5.7 billion) in the second quarter of 2020,
followed by a 4.3 percent ($6.7 billion) increase in the third quarter of
2020. Compared to the other three categories of own-source revenue (i.e.
sales, individual income, and corporate income), revenue from property
taxes experienced a lower rate of decline after the onset of the pandemic.
Property tax changes often lag behind a fiscal downturn due to the time
needed for state and local governments to reassess property values for
property tax purposes. There are often significant delays between
changes in property values and assessments in addition to limits placed
on the growth of property taxes. Local governments—who typically
assess and collect the majority of property taxes—may not experience
the full effects of changing property tax values on property tax revenues
for some time. 16
In addition, residential housing values continued to appreciate during the
pandemic, while commercial real estate experienced stress due to
15South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018). In 2017, we reported that states
could realize between an estimated $8.5 billion and $13.4 billion in additional state sales
tax revenue across all states if all sellers were required to collect taxes on all remote sales
at current rates. For additional information, see GAO, Sales Taxes: States Could Gain
Revenue from Expanded Authority, but Businesses Are Likely to Experience Compliance
Costs, GAO-18-114 (Washington, D.C.: Nov. 16, 2017).
16Although property taxes are primarily a local government revenue source, states largely
control the conditions under which they are administered. Property tax limits generally are
enacted by states and cover an entire state.
Page 8 GAO-21-562 State And Local Governments
pandemic-related restrictions on economic activity. Between 2019 and
2020, state and local government revenue from property taxes increased
4.5 percent, from $615 billion in 2019 to $643 billion in 2020.
Corporate income taxes. State and local government tax revenue from
corporate income taxes decreased 43.8 percent ($7.7 billion) in the
second quarter of 2020, followed by a 240.6 percent ($23.7 billion)
increase in the third quarter of 2020. Similar to individual income taxes,
some states also extended their corporate income tax filing due dates
from April 2020 to July 2020, which may have shifted tax revenues from
the first or second quarter of 2020 to the third quarter of 2020.
Some states also announced payment relief plans for corporate income
taxes, such as waiving penalties for late filing. However, our analysis of
Bureau data showed that, in 2019, corporate income taxes represented
only about 5 percent of total own-source tax revenues for the state and
local government sector. Between 2019 and 2020, state and local
government revenue from corporate income taxes increased 16.4
percent, from $73 billion in 2019 to $84 billion in 2020.
Expenditures Remained State and local government expenditures were also affected by the
Relatively Flat pandemic. According to data from BEA, while state and local government
total expenditures grew slightly in 2020, compared to 2019, expenditures
remained relatively flat over 2020 (see figure 2). 17 Specifically, state and
local government expenditures increased by 1.8 percent ($55.8 billion)
between 2019 and 2020. However, from the first quarter of 2020 to the
fourth quarter of 2020, state and local government expenditures
increased 0.17 percent ($5.5 billion).
17Based on BEA National Income and Product Accounts, Table 3.3: State and Local
Government Current Receipts and Expenditures.
Page 9 GAO-21-562 State And Local Governments
Figure 2: State and Local Government Expenditures (annualized in billions), First
Quarter 2019 through Fourth Quarter 2020
While state and local governments increased expenditures in some areas
to address the pandemic, many also took action to limit spending in other
areas. As we have reported, most states and local governments are
required to balance their operating budgets, which may limit their ability to
increase expenditures to respond to public emergencies or economic
downturns that may also decrease their revenues. 18 A number of
organizations we interviewed, such as NASBO and the rating agencies,
18For additional information, see GAO, State and Local Governments’ Fiscal Outlook,
GAO-20-269SP (Washington, D.C.: Dec.19, 2019).
Page 10 GAO-21-562 State And Local Governments
identified a range of changes to state and local government expenditures
due to the pandemic:
Public Health. State and local governments increased expenditures
in a wide range of public health areas, including testing, personal
protective equipment, hazard pay for frontline workers, and other
medical expenses. 19 Medicaid and the Children’s Health Insurance
Program enrollment also increased by 11.7 percent (8.2 million
individuals) from February 2020 to November 2020, further increasing
state expenditures on public health as these programs are partially
funded by state governments. 20
We recently reported that in the months since the beginning of the
pandemic, the number of people covered under Medicaid increased,
due in part, to increased applications for Medicaid coverage and
requirements under the Families First Coronavirus Response Act for
states to maintain Medicaid enrollment for certain beneficiaries
regardless of their eligibility. 21 At the same time, we reported that
while increased federal Medicaid funding helped states respond to the
public health emergency, it is not permanent and states will face
challenges in resuming normal Medicaid activities, including backlogs
for re-determining beneficiary eligibility for Medicaid coverage. 22
K-12 and Higher Education. State and local governments
experienced higher expenditures in providing broadband and
computer equipment to students for remote learning, child care
access, and nutrition programs to underserved communities. We
reported, for example, that 74 of the 100 largest school districts in the
19We have also extensively reported on increased expenditures on public health. For
example, see GAO, COVID-19: Opportunities to Improve Federal Response and
Recovery Efforts, GAO-20-625 (Washington, D.C.: June 25, 2020), and GAO-21-387.
20States and the federal government share in financing Medicaid, a health care program
for low-income and medically needy individuals. States finance the nonfederal share with
state general funds and other sources, such as taxes on health care providers and funds
from local governments.
21Pub. L. No. 116-127, § 6008, 134 Stat. 178, 208-09 (2020) (“FFCRA”).
22See GAO-21-387.
Page 11 GAO-21-562 State And Local Governments
United States chose distance learning as their only instructional model
for the 2020-2021 school year. 23
Public Transportation. The pandemic affected all modes of public
transit, such as buses, subways, light rail, and commuter rail, in
urban, rural, and tribal areas. Some transportation authorities, which
often rely on user fees as a significant source of funding for operating
or capital expenses, decreased services or delayed projects, following
a decrease in ridership with the onset of the pandemic and pandemic-
related restrictions on travel. For example, we recently reported that
the pandemic exacerbated existing funding challenges for commuter
rail agencies. Specifically, systems experienced significant declines in
ridership and associated fare revenue, and in funding from state and
local sales taxes. 24
State and Local Government Employment. Employee
compensation is the largest expenditure for the state and local
government sector. 25 We have previously reported on state and local
government employment as a timely indicator of state and local fiscal
conditions. 26 Based on unemployment data from the Bureau of Labor
Statistics, with the onset of the pandemic, state and local government
employment decreased by more than 1.5 million jobs on a seasonally-
adjusted basis from February 2020 to May 2020. While state and local
government employment grew following the initial decrease, based on
preliminary data for May 2021, state and local government
employment still remained about 1.2 million jobs less than pre-
pandemic levels.
23GAO, Distance Learning: Challenges Providing Services to K-12 English Learners and
Students with Disabilities during COVID-19, GAO-21-43 (Washington, D.C.: Nov.19,
2020).
24GAO, Commuter Rail: Information on Benefits and Funding Challenges for Service in
Less Urbanized Communities, GAO-21-355R (Washington, D.C.: Apr.1, 2021).
25GAO-20-269SP.
26GAO-21-387.
Page 12 GAO-21-562 State And Local Governments
Selected States
Experienced Varying
Degrees of
Decreased Revenues
and Increased
Expenditures
Predominant Revenue All eight states in our review experienced varying degrees of declines in
Source and Economic own-source revenues after the onset of the pandemic. As shown in figure
3, all states experienced a decrease in own-source revenue of at least 10
Sector Affected Revenue
percent in the second quarter of 2020, compared to the same quarter in
Stream 2019.
Page 13 GAO-21-562 State And Local Governments
Figure 3: Percent Change in the Selected State’s Tax Revenues Collected in 2020 Compared to the Same Quarter in 2019
The extent of revenue decreases and increases varied across the eight
states, depending on a number of factors. These factors included the
state’s predominant source of revenue, economic sector, and the extent
of the state’s mandatory shutdowns of businesses and other parts of the
economy in response to escalating COVID-19 cases.
Page 14 GAO-21-562 State And Local Governments
Of the eight states, Census Bureau data showed that North Dakota
experienced the largest decline in tax revenues—more than 50 percent in
the second quarter of 2020, compared to the same quarter in 2019 (see
figure 3). North Dakota relies on revenues from severance tax imposed
on oil and gas production, which accounted for 53 percent of the state’s
revenues in fiscal year 2019. 27 According to state officials, North Dakota
experienced an impact from both business restrictions and reduced
consumer activity, but also from the unprecedented drop in oil and gas
activity and prices. The sudden drop in prices that resulted from the
collapse in global demand resulted in a significant decrease in the
profitability of North Dakota oil wells. As a result, those wells were
immediately shut down. North Dakota’s daily production of oil declined
from more than 1.5 million barrels of oil per day in February 2020 to less
than 900,000 barrels in May and June 2020. According to state officials,
through November 2020 of North Dakota’s biennial budget period,
revenues from oil and gas taxes were below the state’s forecast by 24
percent, or about $780 million. 28
According to North Dakota officials, lower oil and gas production or prices
also affected the state’s other sources of revenue, such as individual
income, corporate income, and sales taxes. Specifically, declines in
corporate profits within North Dakota’s energy production sector reduced
corporate tax revenues, while declines in employment reduced income
and sales tax revenues.
In December 2020, North Dakota officials told us the state released its
first updated budget forecast for the balance of fiscal year 2021. The
state’s oil and gas taxes were estimated to decrease by about 35 percent
in fiscal year 2021, compared to fiscal year 2020. North Dakota’s
revenues for four of its other major taxes—sales, motor vehicle, individual
income, and corporate income—were estimated to decrease by 9 percent
in fiscal year 2021, compared to fiscal year 2020.
Our review of selected states also showed that state economies
dependent on sales tax revenues from the tourism and leisure industry
27Severance taxes are taxes imposed on the removal of natural products (e.g., oil, gas,
other minerals, timber, fish, etc.) from land or water and measured by the value or quantity
of products removed or sold.
28North Dakota’s relevant biennial budget period was 2019-2021, which began July 1,
2019 and ended June 30, 2021, and covered fiscal years 2020 and 2021.
Page 15 GAO-21-562 State And Local Governments
were particularly vulnerable to the economic effects of the pandemic. 29
Both Florida and Nevada rely on sales tax for more than half of their own-
source revenues and the states’ collection of these taxes are heavily
dependent on the tourism and leisure industry.
• In Florida, for fiscal year 2019, Census Bureau data showed that
sales tax collections provided nearly 80 percent of the state’s total
general revenue collections. From April through June 2020, the total
number of tourists visiting the state of Florida declined 60.3 percent,
compared to the same period in 2019. As a result, sales tax revenues
from Florida’s tourism sector declined more than 11 percent in fiscal
year 2020, compared to fiscal year 2019. State officials told us that
they did not expect tourism to return to pre-pandemic levels until fiscal
year 2022.
• In Nevada, declines in economic activity from reduced tourism and
mandatory business closures affected Nevada’s sales tax revenues
and the state’s gaming tax collections. 30 Specifically, Nevada’s 2
percent sales and use tax, which in fiscal year 2018 comprised about
28 percent of the state’s general fund revenues, declined 1.6 percent
(more than $20 million) between fiscal year 2019 and fiscal year 2020.
Gaming tax collections decreased almost 20 percent between fiscal
year 2019 and fiscal year 2020, reducing gaming tax collections by
about $156 million. 31 Gaming collections are projected to recover
slowly, as indicated by Nevada’s fiscal year 2021 through 2023
revenue forecasts.
Extent and Duration of Further, the extent and duration of mandatory shutdowns of businesses
Mandatory Shutdowns and other parts of the states’ economies, in response to rising COVID-19
Affected Revenue
Streams
29We have also reported that the pandemic affected some sectors of the economy much
more than others, such as leisure and hospitality. For additional information, see
GAO-21-387.
30Under Nevada state law, “gaming” means to deal, operate, carry on, conduct, maintain,
or expose for play any game as defined in the Nevada Revised Statutes section 463.0152,
or to operate an inter-casino linked system. Nev. Rev. Stat. § 463.0153 (1995). In
addition, Nevada state law contains provisions on monthly, quarterly, and annual state
and county gaming taxes and fees. Nev. Rev. Stat. §§ 463.370-463.400.
31According to Nevada’s Economic Forum, Nevada’s gaming percentage fee tax
collections made up almost 19 percent of Nevada’s general fund revenues in fiscal year
2018. Created by the state legislature, the Economic Forum is responsible for providing
forecasts of Nevada’s general fund revenues for each biennium budget period.
Page 16 GAO-21-562 State And Local Governments
case counts, was another predominant factor that affected some states’
revenue sources and unemployment rates.
• In Pennsylvania, the governor issued a series of orders in March 2020
effectively shutting down the physical locations of all “non-life-
sustaining businesses,” closing schools and universities statewide,
and requiring residents to stay at home. During this time,
Pennsylvania’s unemployment rate increased significantly, from about
5 percent in March 2020 to more than 16 percent in April 2020.
Pennsylvania officials said this increase resulted in declines in
individual income tax revenues, while the shutdown of businesses and
restrictions on residents’ activities and travel resulted in lost revenue
from sales, fuel, hospitality, and gaming taxes. These officials also
told us that projecting revenues has been challenging, given the
performance of the economy, which has seen multiple business
shutdowns and re-openings due to the pandemic.
• In January 2020, prior to the pandemic, Nevada’s unemployment rate
was 3.6 percent—the lowest on record for the state. After the onset of
the pandemic, the governor ordered closures in mid-March of all non-
essential businesses, including gaming establishments. According to
Nevada officials, the full economic impact of these business closures
occurred in April 2020, when Nevada’s unemployment rate rose to
more than 30 percent. 32
The state’s gaming establishments in Nevada closed in March 2020
and started to reopen in June 2020. In response to the growing
number of COVID-19 case counts nationally and in the state, Nevada
placed some restrictions on business activities in November 2020.
Those requirements included capacity limits of 25 percent in
businesses such as casinos, restaurants, gyms, conventions and
trade shows, and entertainment venues. These actions did not fully
shut down businesses that were previously allowed to open. Nevada
officials said that the capacity limits created uncertainty for Nevada’s
economy heading into the holiday season.
• Florida officials told us that business closures in March of 2020, as a
result of the pandemic, resulted in a loss of 2 million jobs. Florida’s
unemployment rate increased by more than 10 percent, from 2.8
percent in February to 14.2 percent in May 2020. Florida’s real GDP
32In our prior work, we reported that, nationwide, individuals working in the leisure and
hospitality sector historically have had the lowest average earnings among sectors and
moreover, during the pandemic, have seen the most significant job losses, indicating that
many low-wage workers remained out of work as of February 2021. For additional
information, see GAO-21-387.
Page 17 GAO-21-562 State And Local Governments
declined by 30.1 percent in the second quarter of 2020 (April through
June).
Some Selected States As a number of states in our review began realizing the effects of the
Revised Their Revenue pandemic on their economies, they took steps to revise certain fiscal year
revenue projections downward in anticipation of future revenue losses
Forecasts Downward for
stemming from the pandemic. Michigan, for example, updated its revenue
Fiscal Year 2020 and forecast multiple times for fiscal years 2020, 2021, and 2022, as a result
Future Fiscal Years of the pandemic. Overall, comparing Michigan’s January 2020 revenue
forecast to its January 2021 forecast, fiscal year 2020 revenues were
revised downward by $164 million, fiscal year 2021 revenues were
revised $1.2 billion lower than originally anticipated, and fiscal year 2022
revenues are expected to be about $837 million lower than originally
forecasted. 33
Ultimately, some of the selected states’ revenues out-performed their
revised downward projections for the remainder of fiscal year 2020 and
for the first two quarters of fiscal year 2021. For example, according to
officials, in May 2020, North Carolina revised its revenue projections
considerably downward to account for anticipated fiscal changes due to
the pandemic. The state’s revised forecast reflected a $4.2 billion
reduction in revenues for its 2019-2021 biennium—a $1.6 billion reduction
for fiscal year 2019-2020 and a $2.6 billion reduction for fiscal year 2020-
2021.
According to North Carolina officials, total state revenue collections out-
performed revised projections largely because tax revenue collections
were 2.2 percent ($513 million) higher than anticipated in the balance of
fiscal year 2020. Officials noted that this was due primarily to unexpected
resilience in individual income tax withholding collections and a smaller-
than-anticipated decline in sales tax collections.
Sales tax revenues would have fared worse, according to officials, if not
for the state’s recent policy changes requiring online Internet retailers to
collect and remit sales tax on North Carolina purchases. While revenue
collections from sales and use taxes and individual income taxes—which
33Michigan, along with three other states in our review—Arizona, Florida, and
Pennsylvania—operates on an annual budget cycle, which means that the budget
provides appropriations for 1 fiscal year. The remaining four states in our review—
Nevada, New Hampshire, North Carolina, and North Dakota—operate on a biennial
budget cycle, which means the budget provides appropriations for 2 fiscal years. Michigan
is the only selected state that operates on a fiscal year that runs from October 1 to
September 30. The other selected states’ fiscal years run from July 1 to June 30.
Page 18 GAO-21-562 State And Local Governments
accounted for 85 percent of the state’s general fund revenues in fiscal
year 2020—outperformed the state’s revised estimates, each revenue
source was 4.7 percent below the state’s original 2020 fiscal year target.
In anticipation of revenue losses stemming from the pandemic, Arizona
revised its projections for fiscal year 2020 downward in March 2020. State
officials told us that the fiscal year 2021 revenues from July through
December consistently outperformed the March 2020 revised revenue
forecast, but still remained below Arizona’s pre-pandemic revenue
projections.
Similarly, in August 2020, Florida officials told us the state updated its
general fund revenue projections for fiscal years 2021 and 2022,
including a 10 percent ($3.4 billion) decline for fiscal year 2021 and a 5.6
percent ($2 billion) decline for fiscal year 2022. However, according to
state officials, for the September through December time-period, the state
collected revenues $1 billion above its revised August projection. Florida
officials told us that, in December, the state again updated its fiscal year
2021 revenue forecasts, estimating revenues about $1.5 billion above the
revised August projections.
Most Selected States Officials from five states in our review told us that their states saw
Increased State increased costs associated with public health and safety, such as COVID-
19 testing sites, care for vulnerable populations such as additional
Expenditures, Particularly
medical support for nursing homes and correctional facilities, and
on Public Health and purchases for personal protective equipment for state and local
Safety employees. Some states, such as Arizona and Michigan, also
implemented supplemental hazard pay for certain state employees. In
Michigan, this included frontline direct care and correctional workers.
For example, officials from North Dakota told us that they expect
spending on public health and safety, including COVID-19 testing and
vaccine-related expenses, to continue to be significantly higher than usual
for the remainder of fiscal year 2021. These additional expenses,
according to state officials, required an additional appropriation of $22
million for the state’s Department of Health, as part of the state’s 2019-
2021 biennium budget. As a point of reference, the pre-pandemic budget
for the North Dakota Department of Health for fiscal years 2020 and 2021
was $36.3 million.
Page 19 GAO-21-562 State And Local Governments
Most Selected States
Took Actions to
Address Pandemic-
related Changes in
Revenues and
Expenditures
Most Selected States Took As a result of reductions in revenues at the onset of the pandemic, six of
Actions Aimed at the eight states in our review took a range of actions to reduce or control
spending in some categories. As shown in table 1, six states administered
Reducing Spending
hiring freezes, which took various forms.
• In North Carolina, officials told us state agencies were directed to fill
only vacant state government positions that were deemed “mission
critical.”
• In New Hampshire, the governor ordered a 9-month hiring freeze of all
state employee positions in executive branch agencies, with limited
exceptions such as positions related to the pandemic response. 34
• Nevada, in addition to instituting a hiring freeze, enacted 48 hours of
unpaid furlough leave for state employees, beginning on January 1,
2021 and ending on June 30, 2021.
34New Hampshire’s hiring freeze remained in effect from the end of April 2020 through the
beginning of February 2021.
Page 20 GAO-21-562 State And Local Governments
Table 1: Selected State Actions to Reduce Spending in Response to the Pandemic
Discretionary spending freezes
State Hiring freezes Furloughs and other spending reductions
Arizona — — —
Florida ✔ — ✔
Michigan ✔ — ✔
Nevada ✔ ✔ ✔
New Hampshire ✔ — —
North Carolina ✔ — ✔
North Dakota — — —
Pennsylvania ✔ — ✔
Legend:
✔ State took action
— State did not take action
Source: GAO analysis of state budget documents and interviews with state officials. I GAO-21-562
Five states imposed freezes on discretionary spending and reduced
spending in other areas to respond to declines in state revenues. For
example,
• According to officials, Nevada reduced the state’s capital
improvement funding, such as cancelling renovations for several
college and museum buildings and a planned project to upgrade
surveillance at a state prison. The state also decreased higher
education funding by 19.8 percent and reduced provider rates for
Medicaid.
• In Florida, the governor used his line-item veto authority to reduce
about $1 billion in spending from the state’s approved fiscal year 2021
budget. 35 Specifically, in addition to spending reductions to higher
education, the line-item vetoes included, among other things,
reductions in spending for public works and affordable housing
projects. Florida officials also told us that the governor issued an order
for its state agencies to hold back 6 percent of their fiscal year 2021
budget, while state agencies were instructed to identify an additional
35In Florida, line-item veto authority refers to the ability of the governor to veto any specific
appropriation in a general appropriations bill, but may not veto any qualification or
restriction without also vetoing the appropriation to which it relates. Fla. Const., art. III, § 8.
According to NASBO, 43 states have reported that their governors have this authority.
Page 21 GAO-21-562 State And Local Governments
2.5 percent in reductions in fiscal year 2021 and 10 percent in
spending reductions for fiscal year 2022.
• In Michigan, officials told us that the state had reduced state spending
in a number of areas, including schools, universities, and community
colleges; revenue sharing with localities; and the state’s judiciary
budget. In addition, according to officials from Pennsylvania and North
Carolina, both states established provisions to freeze or reduce non-
essential spending.
Officials from North Dakota told us that the state has not taken any
actions to reduce current biennium spending or services as a result of
COVID-19, which they attributed primarily to two issues. First, actual
revenues were exceeding the state’s legislative revenue forecast by a
considerable margin prior to the pandemic, which resulted in a cushion for
state revenues. This cushion helped the state absorb some of the initial
shortfall from the pandemic. Second, revenue from oil taxes collected in
the current biennium is primarily budgeted for and spent in the
subsequent biennium. As a consequence, although oil and gas taxes
experienced a significant shortfall, officials told us its impact will primarily
be felt during the 2021-2023 budget period. However, North Dakota state
agencies have been informed that they should expect spending
reductions in future budget cycles, with larger agencies needing to
anticipate a 15 percent reduction, and smaller agencies a 5 to 10 percent
reduction.
Half of the Selected States Prior to the pandemic, many states had leveraged a long-term economic
Used Reserve Funds to recovery and growing tax revenues to replenish their rainy day funds—
which rose to unprecedented levels for many states. 36 At the time of our
Help Balance Their
review, four of the eight selected states—Arizona, Michigan, Nevada, and
Budgets Pennsylvania—used all or part of the state’s rainy day or budget
stabilization funds to help pay for budget needs such as pandemic-related
expenses, closing a budget gap, and offsetting revenue losses. 37 For
example,
36As we mentioned earlier in this report, state rainy day fund balances have increased
significantly over the past 20 years.
37According to NASBO, with the exception of Vermont, 49 states must balance their
budgets.
Page 22 GAO-21-562 State And Local Governments
• State officials told us Arizona used $55 million from its $954 million
budget stabilization fund for one-time public health expenses and did
not expect to use additional reserve funds moving forward. 38
• Nevada transferred its entire balance of $401 million from its rainy day
fund to its general revenue fund to help close a budget gap for fiscal
year 2020.
• Pennsylvania officials told us the state used $100 million of its $340
million in reserve funds to balance its fiscal year 2021 budget.
• According to officials, Michigan used $350 million from its rainy day
fund for its fiscal year 2020 budget and plans to replace $210 million
of that amount during the fiscal year 2021 budget cycle. Prior to the
pandemic, Michigan’s rainy day fund balance reflected a 20-year high,
with a balance of $1.2 billion.
At the time of our review, budget officials from the remaining four states—
Florida, New Hampshire, North Carolina, and North Dakota—told us they
had not used any portion of their rainy day funds in fiscal year 2020 to
cover costs from the pandemic and North Carolina and North Dakota did
not expect to do so for fiscal year 2021.
Officials from Most of the Officials from four of the eight states in our review told us that the states’
Eight Selected States proposed budgets for fiscal year 2021 would not include an increase in
state taxes or the adoption of new taxes as a way to generate revenue.
Reported No Increases in
Florida officials said this was the case for the state’s proposed budget for
Taxes or Fees in Proposed fiscal year 2022. Officials from two states—Nevada and North Carolina—
Budgets told us their state legislature had taken various actions to increase
revenues.
• In Nevada, as part of a special legislative session for the state’s 2021
budget, the state legislature passed temporary measures to increase
state revenues, including a tax amnesty program from February 1,
2021 to April 30, 2021. Specifically, the program waives penalties and
interest for businesses and individuals who have unpaid taxes prior to
the start of the program. 39
• In North Carolina, the legislature placed a “floor” on the state’s fuel tax
to prevent the formula-driven rate from dropping below a certain level
38Arizona’s reported budget stabilization fund balance is as of January 2021.
39Under the program, the tax debt must be paid in full to take advantage of the waiver of
penalty and interest.
Page 23 GAO-21-562 State And Local Governments
for the duration of fiscal year 2021. The temporary fuel tax floor will
prevent the tax rate in 2021 from falling below the 2020 rate (36.1
cents per gallon), as it would have done automatically due to the tax
rate being indexed in part to energy inflation. 40 According to North
Carolina officials, the state estimated that this change would increase
motor fuel tax revenues in the state by $20.2 million in fiscal year
2021 and by $33.4 million in fiscal year 2022.
Officials representing five of the eight states—Arizona, Florida, Michigan,
Most Selected States Nevada, and New Hampshire, and Arizona—told us that the federal
Cited Federal assistance they received, including the CRF, helped bolster their state’s
capacity to implement federal programs, as a result of increases in
Assistance as a demand for services due to COVID-19. 41 Specifically, these officials told
Factor That Helped us the states used the CRF to assist with the operation of new and
existing assistance programs to support CARES Act or other programs.
Bolster Capacity to Three of the five states used CRF funds to help process the increased
Implement Federal volume of unemployment claims experienced by the states in the wake of
the pandemic. 42
Programs
• According to Florida officials, CRF funding helped the state avoid
large layoffs of state government employees as well as the
termination of some state programs. For example, using CRF funds,
Florida was able to maintain its current level of operations by
repurposing existing staff to call centers. These staff helped manage
the significant increase in federal assistance applications the state
received for programs such as the Temporary Assistance for Needy
Families and the Supplemental Nutrition Assistance Program.
Florida also used CRF funds to bolster its capacity and enhance the
state’s operations by repurposing hundreds of state employees to
40The fuel tax is indexed to a weighted average of energy inflation and state population
growth.
41As we discuss in greater detail in appendix I, for purposes of this report, we refer to
capacity as both the maintenance of appropriate resources and the ability to effectively
manage and utilize those resources.
42We also recently reported that the unprecedented volume of new unemployment
insurance (UI) claims in the wake of the pandemic posed major challenges for state
officials to provide benefits, help with re-employment, and identify and prevent improper
payments. At the onset of the pandemic, from March 21 to May 30, 2020, initial UI claims
surpassed 42 million—compared to 5.1 million beneficiaries in all of fiscal year 2019—
according to data provided by the Department of Labor. At the same time, states were
also implementing three new, federally funded programs created by the CARES Act that
expand UI eligibility and benefits. For additional information, see GAO-20-625 and
GAO-21-387.
Page 24 GAO-21-562 State And Local Governments
help process the state’s surge in unemployment claims. Based on
data from the Department of Labor, the state received almost 4.8
million unemployment insurance claims between mid-March 2020 and
mid-May 2021.
• In Michigan, the state used CRF funds to establish a project
management office (PMO) within the state’s budget office. The PMO
assists state agencies distributing CARES Act funds, including the
CRF. The PMO also helps state agencies administer, control, report
on, and comply with federal regulations and guidance through the end
of the CRF reporting period. In addition to assisting with CRF funding,
the PMO is also building the state’s capacity to manage other CARES
Act programs, such as grants for local governments and a program
that provides hazard pay for first responders.
Michigan experienced a surge in unemployment claims at the onset of
the pandemic, with nearly 2.2 million unemployment insurance initial
claims filed in the state between mid-March through mid-May of 2020,
according to state officials. Michigan officials told us that its
unemployment system was not designed to manage such significant
increases in unemployment insurance claims and that the state
needed to add both state employees and outside contractors to
support its claims system.
• Nevada also experienced an unprecedented surge in unemployment
claims as a result of pandemic-related business closures. The state’s
unemployment rate increased from 6.4 percent in March 2020 to 29.5
percent the following month. The sudden increase in applications for
unemployment benefits represented a 1,400 percent increase in
workload for the state agency responsible for processing Nevada’s
unemployment insurance claims. According to state officials, to help
manage the influx of claims, Nevada used its CRF funding to establish
a call center with more than 200 positions to respond to calls from
those seeking assistance in applying for unemployment benefits. In
addition, the state reassigned some state employees to help process
the surge in unemployment claims. These efforts helped Nevada
address the increase in workload and the resulting backlog of claims
for unemployment benefits.
• New Hampshire established the Governor’s Office for Economic
Recovery and Relief to respond to the COVID-19 pandemic and,
according to officials, manage the $1.25 billion the state received in
CRF funds. The state staffed the office by repurposing employees
from other state agencies. New Hampshire officials told us that, in
addition to CRF funding, the state received pandemic-related federal
assistance for various programs administered by the state, such as
Page 25 GAO-21-562 State And Local Governments
increases in the Federal Medical Assistance Percentage (FMAP)
under the Medicaid program. 43 They said that, taken together, these
funding sources helped supplement the state’s capacity to implement
federal programs. Officials also told us that while any changes in the
state’s capacity to implement federal programs have been minimal,
the ongoing audit and reporting requirements associated with CRF
funds presented challenges for the state.
• Following the onset of the COVID-19 pandemic, Arizona established
an Economic Recovery Management Team to manage state and
federal resources allocated to respond to the pandemic. According to
state officials, the $1.86 billion the state received in CRF funds helped
it respond to the pandemic in a number of different areas including,
public health, education, distance learning, and small business
support. These officials said that CRF funding allowed state agencies
to use less of their appropriated funds and return those funds to the
state’s general fund. Officials said that other federal actions have also
helped Arizona, including the more than $545 million in increased
FMAP funding. This additional funding allowed Arizona to free up
state budget capacity and stabilize health program funding.
Officials from the remaining three states—North Carolina, North Dakota,
and Pennsylvania—told us that the pandemic had not affected their
capacity to implement federal programs.
We provided excerpts of the draft report to state budget officials in the
selected eight states we included in our review. We incorporated their
technical comments as appropriate.
We are sending copies of this report to the appropriate congressional
committees and other interested parties. In addition, the report will be
available at no charge on the GAO website at http://www.gao.gov.
43FFCRA provided a temporary increase in the FMAP for all qualifying states and
territories through the end of the quarter in which the public health emergency, including
any extensions, ends. Pub. L. No. 116-127, § 6008, at 208-09. For additional information
see, GAO-21-387.
Page 26 GAO-21-562 State And Local Governments
If you or your staff members have any questions about this report, please
contact me at (202) 512-6806 or sagerm@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made key contributions to this
report are listed in appendix II.
Michelle Sager
Managing Director, Strategic Issues
Page 27 GAO-21-562 State And Local Governments
List of Addressees
The Honorable Patrick Leahy
Chairman
The Honorable Richard Shelby
Vice Chairman
Committee on Appropriations
United States Senate
The Honorable Ron Wyden
Chairman
The Honorable Mike Crapo
Ranking Member
Committee on Finance
United States Senate
The Honorable Patty Murray
Chair
The Honorable Richard Burr
Ranking Member
Committee on Health, Education, Labor, and Pensions
United States Senate
The Honorable Gary C. Peters
Chair
The Honorable Rob Portman
Ranking Member
Committee on Homeland Security and Governmental Affairs
United States Senate
The Honorable Rosa L. DeLauro
Chairwoman
The Honorable Kay Granger
Ranking Member
Committee on Appropriations
House of Representatives
Page 28 GAO-21-562 State And Local Governments
The Honorable Frank Pallone, Jr.
Chair
The Honorable Cathy McMorris Rodgers
Republican Leader
Committee on Energy and Commerce
House of Representatives
The Honorable Bennie G. Thompson
Chairman
The Honorable John Katko
Ranking Member
Committee on Homeland Security
House of Representatives
The Honorable Carolyn B. Maloney
Chairwoman
The Honorable James Comer
Ranking Member
Committee on Oversight and Reform
House of Representatives
The Honorable Richard E. Neal
Chair
The Honorable Kevin Brady
Republican Leader
Committee on Ways and Means
House of Representatives
Page 29 GAO-21-562 State And Local Governments
Appendix I: Objectives, Scope, and
Appendix I: Objectives, Scope, and
Methodology
Methodology
This report examines the fiscal conditions of state and local governments
resulting from the Coronavirus Disease 2019 (COVID-19) pandemic.
Specifically, the objectives of our review were to examine: (1) what is
known about changes in revenues and expenditures for the state and
local government sector since the onset of the pandemic, (2) how
revenues and expenditures have changed since the onset of the
pandemic in selected states, (3) what actions selected states have taken
to address changes in revenues and expenditures, and (4) factors that
have affected the selected states’ capacity to implement federal
programs.
To describe what is known about changes in revenues and expenditures
for the state and local government sector, we analyzed data on states’
and localities’ revenues from the U.S. Census Bureau (Bureau) and
expenditures from the Bureau of Economic Analysis’s (BEA) National
Income and Product Accounts (NIPA) for 2019 and 2020. Specifically, we
analyzed seasonally-adjusted aggregate data from the Bureau’s Quarterly
Summary of State and Local Government Tax Revenue to compare
changes in select categories of tax revenues collected from quarter to
quarter for 2019 to 2020. We used the Bureau’s four categories of tax
data as part of our analysis, which included the following four categories
of own-source revenue: (1) sales; (2) property; (3) corporate income; and
(4) individual income. The Bureau’s data that we analyzed did not include
all types of own-source revenue, such as excise taxes or user fees, or
other types of revenue, such as federal grants to state and local
governments, including COVID-19 pandemic-related funding.
We also analyzed seasonally-adjusted aggregate state and local
expenditure data from BEA’s NIPA Table 3.3 for 2019 and 2020. We
determined that the NIPA data were the most recent available data for the
purpose of examining aggregate state and local government
expenditures. The NIPA data do not always match state and local
government budget data due to methodological differences between how
BEA calculates NIPA data and how state and local governments compute
their budget data. For purposes of this review, we determined that the
BEA NIPA data and Bureau data were sufficiently reliable for our analysis
of state and local government revenues and expenditures.
Our data reliability assessment included reviewing relevant
documentation and the data to identify obvious errors or outliers. We also
reviewed our prior reports and those of other organizations examining
state and local government revenues and expenditures since the onset of
COVID-19.
Page 30 GAO-21-562 State And Local Governments
Appendix I: Objectives, Scope, and
Methodology
To identify how selected states’ revenues and expenditures have
changed since the onset of the pandemic, what actions they have taken
to address these changes, and the factors that affected the selected
states’ capacity to implement federal programs, we interviewed budget
officials in eight states. 1 Those states included:
• Arizona
• Florida
• Michigan
• Nevada
• New Hampshire
• North Carolina
• North Dakota
• Pennsylvania
Combined, these states represent about 20 percent of the U.S.
population. We selected those states based on a number of factors. 2
First, we obtained data from the Centers for Disease Control and
Prevention on the number of reported COVID-19 cases per 100,000
population in each state as of October 19, 2020. We then grouped the
states according to low, medium, and high, based on the number of
COVID-19 cases per 100,000 population. We also calculated the amount
of Coronavirus Relief Fund (CRF) payments that the Department of the
1For purposes of this report, we refer to capacity as both the maintenance of appropriate
resources and the ability to effectively manage and utilize those resources. In our prior
work, we identified several different types of capacity: organizational (i.e. the degree to
which an organization is institutionally prepared for grant management and
implementation, including its ability to employ technology for grant oversight and
reporting); human capital (i.e. the extent of sufficient staff with the knowledge and
technical skills needed to effectively meet its goals and objectives); and financial (i.e. the
extent of an organization’s ability to meet financial responsibilities related to federal
grants, such as matching requirements). For additional information on discussions of
capacity, see GAO, Municipalities in Fiscal Crisis: Federal Agencies Monitored Grants and
Assisted Grantees, but More Could Be Done to Share Lessons Learned, GAO-15-222
(Washington, D.C.: Mar. 20, 2015), and Grants to State and Local Governments: An
Overview of Federal Funding Levels and Selected Challenges, GAO-12-1016
(Washington, D.C.: Sept. 25, 2012).
2For purposes of this report, we did not include tribal governments in the scope of our
work as GAO has ongoing work examining the federal response to tribes in the context of
the COVID-19 pandemic. For the most recent report, see GAO, COVID-19: Sustained
Federal Action Is Crucial as Pandemic Enters Its Second Year, GAO-21-387 (Washington,
D.C.: Mar. 31, 2021).
Page 31 GAO-21-562 State And Local Governments
Appendix I: Objectives, Scope, and
Methodology
Treasury (Treasury) allocated to each state on a per capita basis. That is,
we divided the amount of Treasury’s allocation of funding for each state
by the Bureau’s population estimate for each state as of July 1, 2019. We
grouped the states according to high, medium, and low CRF allocation
per capita. We also used Bureau data on state government tax revenues
to identify the predominant revenue source in each state.
Further, using Bureau of Labor Statistics data on percent changes in
employment rates for each state between August 2019 and August 2020,
we grouped the states according to low-, medium-, and high-percentage
changes in unemployment. We also considered the political affiliation of
governors in each state, based on categories identified by the National
Governors Association, and used the Bureau’s division of regions to
achieve geographic diversity. Table 2 provides additional detail on the
characteristics of the eight states selected for our review.
Table 2: Characteristics of Eight States Selected for Our Review
Range in Range in amount
reported of Coronavirus
COVID-19 Relief Fund Predominant tax Range in year to year Governor’s
cases per allocation per revenue source percent change in political Census
State 100,000a capitab (2019)c U.S. unemploymentd affiliatione regionf
Arizona High Low General Sales Low Republican West
Florida High Low General Sales Medium Republican South
Michigan Low Low Individual Income Medium Democrat Midwest
Nevada Medium Medium General Sales High Democrat West
New Hampshire Low Medium Corporation Net Medium Republican Northeast
Income
North Carolina Medium Low Individual Income Low Democrat South
North Dakota High High Severance Low Republican Midwest
Pennsylvania Low Low Individual Income High Democrat Northeast
Source: GAO analysis of data from the Centers for Disease Control and Prevention (CDC), U.S. Department of the Treasury (Treasury), Census Bureau, U.S. Bureau of Labor Statistics, and National
Governor’s Association.
a
Based on CDC data as of October 19, 2020. According to CDC, case counts include both confirmed
and probable cases. For the purposes of this analysis, we grouped the eight states according to low
(0 – 1,999), medium (2,000 – 2,999), and high (3,000+) COVID cases per 100,000 individuals, based
on each state’s COVID cases per 100,000 population.
b
Represents the maximum allocation of Coronavirus Relief Fund (CRF) payments to states on a per
capita basis, based on the fund allocations provided through Treasury. For the purposes of this
analysis, we grouped the eight states according to low ($0 - $387.76), medium ($387.77 - $999.99),
and high ($1,000+) CRF fund allocation.
c
Represents the predominant tax revenue source in the state in calendar year 2019.
d
Based on unemployment changes from August 2019 to August 2020. For the purposes of this
analysis, we grouped the eight states according to low (0 – 2.9), medium (3 – 4.9), and high (5+)
percentage point changes in unemployment.
Page 32 GAO-21-562 State And Local Governments
Appendix I: Objectives, Scope, and
Methodology
e
Represents the political affiliation of the state governor.
Based on one of four Census Bureau-designated regions, which include Northeast (region 1);
f
Midwest (region 2); South (region 3); and West (region 4).
We then developed and administered a semi-structured interview to state
budget officials in the eight selected states regarding how revenues and
expenditures in the state have changed since the onset of the pandemic,
what actions the states have taken to address these changes, and what
factors affected the selected states’ capacity to implement federal
programs. We also obtained and analyzed state budget and other
relevant documents to identify selected states’ actual and projected
revenues and expenditures for 2020 and 2021, as well as actual or
estimated use of reserve funds for 2020. In addition, we obtained
documentation related to what actions selected states have taken, or
planned to take, in response to revenue declines and spending increases
resulting from the pandemic, actions selected states have taken or
planned to take to increase revenues, and the amount of federal
assistance through the CRF that states have used.
We use the terms “a number of,” “some,” “a majority of” and “most” to
characterize the number of states that were similarly situated for a
particular issue. Specifically, we defined “a number of” or “some” to
characterize two or three states and “a majority of” or “most” as five or
more states. The results of our study are not generalizable to all states.
As part of our objective to identify how state revenues changed for the
selected eight states after the onset of the pandemic, we also analyzed
aggregate data from the Bureau’s Quarterly Summary of State and Local
Government Tax Revenue, Table 3: State Government Tax Collections
by State and Type of Tax. We used these data to examine the percent
change in selected state government own-source tax revenue collected in
2020 compared to the same quarter in 2019. The Bureau’s Table 3
consists of state government tax data made up of the following five
categories of own-source tax revenue: (1) property taxes; (2) sales and
gross receipts taxes; (3) license taxes; (4) income taxes; and (5) other
taxes. 3 The data in the Bureau’s Table 3 do not include funding from
federal grants to state and local governments, including COVID-19
pandemic-related funding.
3The Bureau’s “other taxes” category includes: (1) death and gift; (2) severance; (3)
documentary and stock transfer; and (4) other taxes not elsewhere classified.
Page 33 GAO-21-562 State And Local Governments
Appendix I: Objectives, Scope, and
Methodology
To provide context for and supplement our understanding of changes in
the state and local government sector’s revenues and expenditures since
the onset of the pandemic, we met with a number of associations that
represent state and local governments. Those included: the Council of
State Governments; National Association of Counties; National
Association of State Auditors, Comptrollers, and Treasurers; National
Association of State Budget Officers; National Conference of State
Legislatures; National Governors Association; National Association of
State Treasurers; Government Finance Officers Association; and National
League of Cities. Furthermore, we interviewed representatives from credit
rating agencies—Fitch Ratings, Moody’s Analytics, and S&P Global
Ratings—to gain insight on the fiscal impacts of the pandemic on states’
and localities’ economies. The results of these interviews are not
generalizable to the entire state and local government sector.
We conducted this performance audit from August 2020 to July 2021 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Page 34 GAO-21-562 State And Local Governments
Appendix II: GAO Contact and Staff
Appendix II: GAO Contact and Staff
Acknowledgments
Acknowledgments
Michelle Sager, (202) 512-6806 or SagerM@gao.gov
GAO Contact
In addition to the contact named above, Brenda Rabinowitz (Assistant
Staff Director), Anthony Bova (Analyst-in-Charge), and Wade Tanner made
Acknowledgments key contributions to this report. Ann Czapiewski, Samantha Lalisan, and
Farrah Stone also provided support.
(104476)
Page 35 GAO-21-562 State And Local Governments
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