At this time of year, most states would be winding down the budget process to prepare for the next fiscal year, but this year the COVID-19 outbreak and containment measures put in place have displaced business as usual. In most states where the fiscal year 2021 budget had been adopted, potential revenue impacts of the recession have necessitated discussions on amending the budget.

Baseline Forecast Shows Severe Contraction Heading Into Fiscal 2021

In S&P Global Economics' baseline forecast, the U.S. economy will contract by 5.2% by the end of 2020, with a slow recovery expected beginning in the third quarter and growth reaching 6.2% in 2021. (See "An Already Historic U.S. Downturn Now Looks Even Worse," published April 16, 2020, on RatingsDirect.)

With the U.S. economy gearing for steep declines in economic output and employment levels for most of 2020, fiscal 2021 (beginning July 2020 for most states) arrives with more significant uncertainty for states than they have experienced in several years. The budget picture is even more unclear for states with significant oil-related revenues as their economies begin to adjust to significantly lower prices and production. States are beginning to report declining revenue collections for April and tax receipts are generally below current year budget estimates. We believe this sets the stage for the onset of a difficult budget year across states despite various federal stimulus efforts (including the CARES Act and its municipal liquidity facility) injected recently to lessen the blow of an abrupt economic shutdown. Absent further federal stimulus, we expect that states will experience a sizeable downturn in revenues.

Social Distancing Disrupts Budget Processes For Some States

Because of social distancing measures in place across most of the U.S beginning in March, most states either suspended or prematurely concluded ongoing legislative sessions to maintain safety standards. Nevertheless, 32 states have adopted budgets for 2021, including 17 with biennial budgets adopted during the 2019 session. While most states will begin their fiscal year by July, four start their fiscal year at other times (Alabama (October), Michigan (October), New York (April) and Texas (August)).

Budget Adjustments Expected

We expect that budget adjustments in fiscal 2021 will be fairly common as 21 state budgets were already enacted by the time COVID-19 was declared a global pandemic. Even for budgets adopted soon after, the uncertainty of the severity and duration of the economic contraction means that the effects could not adequately be incorporated into the budgets. As of May 19, only 20 states had prepared revenue forecasts that incorporated effects of the current recession. Even where updated estimates have been incorporated into enacted budgets, we expect additional revisions through the start of the fiscal year. In addition to the pandemic, volatility in oil prices could prove to be an additional trigger to revenue mismatch for oil-dependent states.

We expect states will begin to explore various options to address fiscal pressures in 2021 and in the next few years. As discussed in our report, "When The Cycle Turns: Government Framework Is A Significant Factor In States’ Ability To Navigate Downturns," published May 23, 2019, the framework within which a state raises revenue, spends, and issues debt influences its ability to manage fiscal pressures through various economic stress scenarios.

2020 Could Mark The End Of Reserves Growth

Prior to the current recession, most states prioritized building up reserves for a potential downturn. Based on National Association of State Budget Officers (NASBO) data, average state reserves grew by 170% to about 13% of budgeted expenditures between 2009 and 2019. We expect that these reserves will be critical to immediate and long-term response by states to revenue swings in the budget until recovery takes hold. We generally expect a state's financial management and budgetary flexibility will dictate much about its resilience to stress when the economy softens. We anticipate that most states will not increase reserves for fiscal 2020 even when expected in the current budget. Furthermore, some states will use some reserves to address late-year budget shortfalls leading to lower average reserves available for fiscal 2021 than previously anticipated. Based on NASBO data, 2020 average reserves are expected to fall to about 10.8% based on current budget estimates but we expect that figure could shrink even further as states' revenue collections begin to align with the recent economic contraction.

During A Challenging Year, Long-Term Pressures Could Become Acute

In a period characterized by significant volatility, unaddressed long-term pressures could compound credit conditions affecting states and their budget management. The longer-term outlook is particularly daunting for those with high fixed costs or still-distressed pension funding levels, some of which did not address these liabilities during the recent economic expansion. We estimate that five states had fixed costs (including pension contributions, debt and state shared Medicaid costs) higher than 40% of 2018 operating revenues. To alleviate budgetary pressures, adjustments to reduce plan costs and contribution increases are likely to be considered. Additionally, we estimate that U.S. public pension funds lost approximately $850 billion in aggregate in the first quarter of 2020. This could lead to lower pension levels for states. (For more information, see "Pension Brief: The Future Of U.S. Public Pensions After The Sudden-Stop Recession," published May 6, 2020).

State Budget Roundup

Alabama

Alabama's legislature passed its $2.4 billion State General Fund (SGF) and $7.24 billion Education Trust Fund (ETF) budgets, which reflects 7.6% and 1.2% increases, respectively, over the prior year. Currently, the state has not amended its 2020 budget and officials do not expect to undergo proration of the fiscal 2020 budget. Despite a 33.7% monthly decline in April 2020 gross tax collections compared to the previous fiscal year, fiscal 2020 year-to-date revenue is approximately $27.5 million, or 0.4%, ahead of the previous fiscal year. Based on its monthly condition of funds report for April 2020, the estimated SGF year-end fiscal 2020 reserve of about $273 million represents 11.5% of budgeted SGF expenditures, while its estimated ETF year-end fiscal 2020 reserve balance of $415 million is approximately 5.4% of ETF budgeted expenditures.

Alaska

The enacted fiscal 2021 budget presents an unwelcome revenue profile for Alaska. We view the enacted fiscal 2021 budget as significantly imbalanced as the state's main operating fund, its unrestricted general fund (UGF), relies on $952.9 million from the Constitutional Budget Reserve Fund (CBRF), or 21% of budget. The enacted budget virtually depletes the state's CBRF to just $61 million, leaving it to rely solely on its Earnings Reserve Account (ERA) for available reserves. Economic conditions will drive the state's budget outlook, but in our estimation the planned draw on the ERA for fiscal years 2020 and 2021, depending on investment earnings, may leave the state with reserves to cover less than 200% of expenditures, down from an average 375% of expenditures from fiscal years 2015 to 2019. Continued budget shortfalls are projected as reserves are drawn down and oil prices remain at historically low levels. In our opinion, the state has narrowing time and tools available to adjust its budgetary performance and if revenue estimates prove worse than expected, further credit deterioration is likely to occur.

Arizona

The Arizona legislature adopted the 2021 budget with minimal increases to general fund spending. Ongoing spending increased by about $600 million mainly incorporating predetermined increases to school funding. While the state expects revenue decline from the pandemic, its budget did not use new revenue projections due to uncertainty of impact on revenues. The state has provided updated economic projections since the budget was adopted which shows that fiscal 2021 general fund reserves are now likely to be depleted in 2020 but rainy day funds are expected to remain around $1 billion or about 10% of general fund expenditures at the beginning of the fiscal 2021.

Arkansas

Arkansas' enacted 2021 general fund budget totals $5.9 billion, or a modest 1.9% increase relative to the 2020 fiscal year budget. The Department of Finance and Administration released a revised revenue forecast in early April, which estimated a $242 million revenue shortfall compared to its Jan. 31, 2020, revenue forecast and a projected $205.9 million revenue decline for fiscal 2021. Following a healthy year-end surplus in fiscal 2019, the state entered fiscal 2020 adding to reserve balances. Its general fund allotment reserve and budget stabilization reserve balances were estimated to total $327 million, or 5.7% of general revenue expenditures. The state created a COVID-19 rainy day fund, which immediately transferred $173.6 million from the general allotment reserve fund to offset revenue reductions and cover COVID-19 related expenditures.

California

California estimates that its fiscal 2020 general fund revenue will fall $3.6 billion (not including the effects of fund transfers), or 2.5%, compared to fiscal 2019, and fiscal 2021 will decline a further $21.6 billion, or 15.3% compared to fiscal 2020. The declines are even greater when compared to the rosy revenue forecast used in the governor's fiscal 2021 executive budget presented in January. The governor has introduced a May budget revision proposal that would substantially cut aid to local schools, withdraws $7.8 billion from the state's rainy day fund in fiscal 2021 (about 6% of general fund expenditures), and cancels a scheduled $2.2 billion transfer to the fund in fiscal 2020, as well as use of other reserves, withdraws previously proposed program expansions, and makes many other adjustments. General fund expenditures would decline 8.6% in fiscal 2021 alone, under his proposal, including a $7.48 billion, or 14.3% decline in Proposition 98 K-14 school appropriations.

Colorado

Colorado's proposed budget (including amendments) projected general fund ending balance for fiscal 2021 at about $944 million or 8% of expenditures, incorporating revenue softening projected in the state's March economic forecast. However, a more recent May forecast shows an additional 7.4% decline in general revenues and general fund reserves could be lowered to about 2% of expenditures in 2020. The legislative budget committee is currently in session and expects to adopt the 2021 budget to align with the new forecast.

Connecticut

Prior to the pandemic, Connecticut was on track to increase reserve levels to over 15% during the biennium. The state's strong position entering fiscal 2020 is likely to weaken, with reserve balances at 12.9% of appropriations expected to decline to 9.4% following the drawdown for this year's deficit. The projections also forecast a $2.2 billion deficit (10.7% of expenditures) for fiscal 2021 that the state will need to address through some combination of expenditure and revenue changes or continued use of reserves. The level of reserves at the end of fiscal 2020 is expected to be $1.9 billion and is insufficient to make up all of the projected deficit for fiscal 2021. During the last recession, the state issued nine-year deficit bonds to close its shortfall.

Delaware

Delaware's legislature postponed its session on March 18 in response to the pandemic and subsequent stay at home order. When lawmakers virtually reconvene later this month, they will resume budget negotiations with updated revenue projections. The Delaware Economic and Financial Advisory Council's forecasting as of April 2020 estimates that general fund revenues will underperform its March 2020 forecast by $416 million (8.7%) in fiscal 2020 and $273.3 million (5.8%) in fiscal 2021. If no corrective measures were implemented, these estimates project the state's unencumbered cash balance for fiscal 2020 would be negative $150 million (3.2% of expenditures).

Florida

The Florida legislature adopted a 2021 budget totaling $93.2 billion ($35.2 billion general fund), a modest 2.4% more than the 2020 fiscal year budget. The governor is yet to formally review the budget and has publicly said that he will assess the degree to which federal funds can provide budgetary support. At this point, the state's Consensus Revenue Estimating Conference has not met to account for the budgetary impact from the pandemic. Supported by favorable economic conditions, the state came into fiscal year with positive momentum. Its general fund balance reserves (including its budget stabilization fund) were estimated to total $3.5 billion, or 10.3% of general revenue expenditures. The state has indicated that it does not anticipate making budgetary cuts for the current fiscal year.

Georgia

The governor's proposed fiscal 2021 budget assumed 2.6% revenue and expenditure growth over the amended fiscal 2020 budget. Among key initiatives included in the proposal were an additional $2,000 salary increase for teachers, increased spending on higher education, and increased capital spending on transportation projects. However, Georgia is expecting significant revenue shortfalls as a result of the pandemic and the governor has instructed agencies to identify approximately 14% in expenditure reductions from the fiscal 2020 base amount. The legislature is expected to convene in mid-June to consider the budget proposal. Use of the rainy day fund has been proposed to address immediate effects of the pandemic, but it is unclear how much, if any, of the reserve fund may be used to balance the current and subsequent fiscal years.

Hawaii

Hawaii's 2020-2021 adopted budget includes $15.6 billion in total spending in fiscal 2020. General fund spending would be $8.4 billion in fiscal 2020, projecting general fund revenue growth of 3.6% from 2019. Dampened revenue projections in March led to an updated general fund plan with lower revenues than originally anticipated. The updated general fund plan projects deficits in fiscal years 2020 and 2021 of 2% and 7.7% of general fund expenditures, respectively. The state expects that these deficits will be reviewed after the next forecast in May. Combined reserves by the end of 2020 are currently estimated to be $624 million or 7% of expenditures.

Idaho

Ten months into fiscal 2020, Idaho general fund revenues are down 10.7% relative to forecast, or $355.69 million. Due to a shift in the filing deadline for income taxes to June from April, individual income tax collections were down 71.6% relative to forecast for the month while sales tax collections were down 3.1%. Prior to the pandemic the state's budget stabilization fund was estimated to end fiscal year 2020 at $373.19 million, or 9.5% of appropriations. The governor has requested cuts of approximately 5% for the fiscal year 2021. The adopted budget was marginally larger than 2020 by about 3%.

Illinois

Illinois hopes to have a budget in place in May. The governor's proposed budget from January suggested an increase to $42.1 billion and had options should the November constitutional amendment to create a progressive income tax pass or fail. The current revenue forecast shows either a $6.2 billion gap if the progressive tax passes or a $7.4 billion gap should the ballot measure fail. The May estimates for fiscal 2021 general fund revenues are $37.5 billion, a 10.9% decline from the January estimates. The expenditure cuts have not yet been suggested, but will be shared in the adopted budget. . (For more information on Illinois, see our most recent report published April 28, 2020.)

Indiana

Indiana entered the fiscal year--the first of its biennial budget--on a strong footing, including $2.2 billion in budgetary reserves equal to approximately 13% of appropriations. The state's enacted 2020-2021 biennial general fund budget totaled $34.59 billion, composed of $17.1 billion and $17.49 billion in fiscal years 2020 and 2021, respectively. We understand the state's revenue estimates for the remainder of the biennium will be revised in mid-summer. With the approval of the governor, the state budget director can withhold allotments of appropriations to agencies if revenues are less than anticipated to prevent a deficit. Budget adjustments have historically been implemented regularly and on a timely basis.

Iowa

Iowa's legislature halted its session in mid-March after voting to extend current funding levels through July and August if budget talks were unable to resume before the end of the fiscal year. Now, the legislature is expected to reconvene on June 3 and officials have requested the Revenue Estimating Conference to meet beforehand to inform fiscal 2021 budget discussions. The Department of Management reports that general fund revenue collections through April were down $357.3 million (31.5%) for the month and $54.3 million (0.7%) for the year, compared to the same time period last year.

Kansas

Kansas adopted a 2021 budget which increases general fund spending by 2.5% compared to the prior year. However, revenue reforecast released in April incorporate a 5.8% decline in total revenue due to the effects of the recession. Kansas has not amended its budget to reflect the latest revenue revisions. The estimated year-end fiscal 2020 reserve of about $926 million represents 11.8% of expenditures.

Kentucky

Kentucky has adopted a one-year budget for fiscal 2021, unlike its typical biennial budget, to be in a position to more effectively make adjustments as conditions change. The budget utilizes a pessimistic revenue forecast reflecting $130 million less than the baseline estimates produced in December 2019. Expenditures were relatively flat while continuing to fund the state's full actuarially determined contribution for the teachers' and state employees' public pension plans. The state's budgetary reserve balance was projected to increase in 2020 with a direct appropriation of $195 million to bring the balance to 2.7% of revenues. The state forecasted in April a potential general fund shortfall for fiscal 2020 of 3.8% to 4.7% of revenue and for revenues in the first half of fiscal 2021 to fall another 10.5% to 17.2%. (For more information, see our report "Kentucky’s Budget Management Tools Offset Near-Term Fiscal Effects Of COVID-19-Induced Recession," published April 15, 2020.)

Louisiana

Louisiana's legislative session began in March but due to safety concerns stemming from the COVID-19 outbreak legislators had been largely unable to work through the budget development process. The state's budget stabilization fund was estimated to end fiscal year 2020, with a balance to $565.8 million or nearly 5.8% of general fund expenditures, which we consider good. For May, the Revenue Estimating Conference estimates general fund collections to decline slightly over $120 million for the current fiscal year and over $865 million for the next budget which begins July 1, 2020. The estimated decline in revenues for the fiscal year 2021 equates to roughly 10% of current year appropriations.

Maine

In the middle of its fiscal 2019-2021 biennium, Maine's legislature adjourned its second regular session on March 17. The state's most recent economic and revenue forecasts do not yet incorporate effects of the COVID-19 pandemic but the governor has called for the forecasting bodies to meet about three months earlier than is typical. The Consensus Economic Forecasting Committee is expected to meet in June and the Revenue Forecasting Committee is expected to meet in July and/or August. As of March, Maine's fiscal year-to-date general fund revenues were $10.9 million, or 0.4%, behind estimates due in part to individual income tax refunds that exceeded expectations after faster processing times resulting in 14,000 more returns being processed compared to the same period last year.

Maryland

Maryland's enacted fiscal 2021 budget proposal was balanced and maintains spending on key priorities. Of estimated general fund spending, 46% is on public education and 31% is on public health and human services. Over the long term, increasing funding in these areas is likely to present challenges. We view Medicaid spending, education spending, and slower revenue growth as key budget concerns for the state. The state's revenue stabilization account has been maintained at the 5% minimum level since fiscal 2008 as the state coped with structural deficits. The adopted budget estimated at fiscal 2021 year-end the state would maintain the state's reserve fund balance at $1.2 billion, or 6.25% of expenditures. The next formal revenue estimate is expected in September and likely to show a significant downward revision.

Massachusetts

Massachusetts has not enacted its 2021 budget but recently disclosed that tax revenues for April were 52.2% below its benchmark January forecast, while cumulative year-to-date fiscal 2020 tax revenues were 7.7% below forecast. Massachusetts has closed on a $1.75 billion cross-fiscal year credit line with a syndicate of banks for cash flow borrowing to compensate for the deferral of income tax payments due to the movement of the tax filing and payment date to July, and to avoid the need to use its rainy day fund in fiscal 2020. However, the rainy day fund will likely now be drawn down upon in both fiscals 2020 and 2021. We believe the rainy day fund will provide the state time to make adjustments when it enacts its fiscal 2021 budget this summer.. Typically, Massachusetts adopts a budget after the July 1 start of its fiscal year, using a temporary interim budget in the meantime.

Michigan

Michigan's proposed budget includes $11 billion in general fund spending, which 5.8% higher than fiscal 2020. Additionally, the state's Aid Fund budget is $15.9 billion, 4.9% higher than the prior year. The budget projects total general fund revenues at $11.0 billion; however more recent estimates have revised the revenues for 2020 to about $9.3 billion. The state expects to adopt a budget that incorporates significant adjustments to reflect revenue declines in 2021 as shown in its May consensus revenue estimates. The state's proposed budget projects a 2020 ending combined General Fund and Budget Stabilization Fund balance of over $2 billion, or approximately 19% of expenditures.

Minnesota

Prior to COVID-19, Minnesota was projecting a $1.5 billion surplus for the 2020-2021 biennium, which was 3.1% of biennial expenditures, and its general fund reserves stood at $2.8 billion (5.7% of biennial expenditures). The state released an interim budget projection in May, revising revenues down by $3.61 billion (7.4%) and increasing expenditures by $391 million (0.8%). As a result, the state is projecting a $2.4 billion (5.0%) deficit for the biennium. Without any adjustments, the deficit would reduce reserves to just $349 million (0.7%). The state's legislative session closed May 18 without action to address the deficit; however, it is expected that legislators will return for a special session in mid-June.

Mississippi

Mississippi's legislature had suspended its session in the interest of public safety stemming from COVID-19. However, legislators reconvened in May to complete the fiscal 2021 budget. In November 2019, the Joint Legislative Budget Committee's original fiscal 2021 budget recommendation totaled $5.75 billion, including a 2% general fund set aside (approximately $119.3 million) to address potential volatility prior to the COVID-19 pandemic. The state has not yet revised its revenue forecast. The fiscal year-to-date revenue estimate is $26 million, or 0.6%, below the sine die estimate and $109 million, or 2.3%, below the previous year's collections. The state's working cash stabilization reserve fund began fiscal 2020 with a balance of $465 million or nearly 8.1% of budgeted fiscal 2020 general fund expenditures.

Missouri

In May, Missouri's legislature passed a $35.2 billion total governmental funds budget, reflecting a 18.6% increase in spending over the previous fiscal year. However, we note that a substantial portion of the budget increase incorporates the state's share of CARES Act funding. At the end of April 2020, the state reported a 57.2% decline in general revenue collections for the month, and total collections were $633million, or 7% below year-to-date estimates. The administration reduced budget appropriations by $227 million, with most of the cuts made to education (primary through higher). The governor has announced that the state could make additional budget rescissions before June 30 in order to address revenue shortfalls. Entering the fiscal year, Missouri had about $651 million in its budget reserve fund, which represents 6.4% of budgeted fiscal 2020 general revenue fund expenditures.

Montana

Montana's enacted budget for the biennium includes $2.6 billion in fiscal 2021, and is focused on building reserves while investing in education, health care, and infrastructure. The enacted budget was based on revenue estimates by the Legislative Fiscal Division prior to the pandemic. The enacted budget has estimated total reserves at about $294 million, or 11% of expenditures, in fiscal 2021. Although revenue collections through March remain strong, we expect the effect of the pandemic on revenues in April. The state does not have an updated revenue forecast.

Nebraska

After Nebraska adopted its biennium budget, tax receipts, which were significantly above budgeted estimates, led to the Nebraska Economic Forecasting Advisory Board (NEFAB) revising general fund estimates for the biennium upward and mid-biennium adjustments to the budget. For the biennium, the state projects a $158 million surplus after adjustments (3.3% of budgeted appropriations). However, NEFAB is expected to meet again in October and could update its revenue projection for the 2020-2021 biennium reflecting effects of the current recession. After prior budget adjustments, the state is projected to end the biennium with $1.2 billion combined general fund and cash reserves (25% of expenditures).

Nevada

Nevada's enacted 2020-2021 biennium general fund budget totals almost $8.9 billion, or about 11%, above the previous biennium budget. The budget includes the required 5% minimum general fund balance and officials project about $390 million in rainy day funds at the end of calendar 2020, for a combined budgetary fund balance equal to 17% of expenditures, which we consider strong. However, we expect the effects of the pandemic to affect the state's ability to build reserve to budgeted levels. The recommended budget is based on the May 1, 2019, Economic Forum revenue forecast that projects a total of $9.2 billion before tax credits, or 3.3% year-over-year growth in fiscal 2020 and 3.0% growth in fiscal 2021. More recent revenue collections have begun to show softening and we consider Nevada particularly exposed to revenue declines due to dependence of its economy on the leisure and hospitality sector. (See our report on the state published April 21, 2020.)

New Hampshire

New Hampshire entered the fiscal 2020-2021 biennium with a structurally balanced budget in its combined general and education funds, totaling $2.73 billion in fiscal 2020 and $2.81 billion in fiscal 2021. The state has not yet revised its biennial revenue forecast. April monthly revenue collections in the combined general and education funds were below the budget by $76. million (or 22.4%), and fiscal year-to-date revenue was below plan by $75million (or 3.4%). New Hampshire estimates that its budget gap could widen to $200 million by the end of the current fiscal year, and expenditure reductions for fiscal 2021 could range from $250 million to $500 million. The state entered fiscal 2020 with an undesignated fund balance of $192.5 million and $78.9 million in the general and education funds, respectively, or about 4.1% of appropriations. At the same time, the fiscal 2019 reserve balance (rainy day fund) was $115.3 million (4.7% of appropriations), which we consider good.

New Jersey

New Jersey has released a new revenue projection estimating fiscal 2020 budgetary revenues to be 7.0% lower than the governor's February revenue estimate, and fiscal 2021 to be 17.8% lower, excluding new tax proposals advocated by the governor. One-month April 2020 tax revenues were down 59.7% compared to the same period in 2019. To meet temporary liquidity needs due to the deferral of state income tax payments to July, the state extended its fiscal year to Sept. 30 from June 30, in order to avoid external liquidity borrowing that would impermissibly cross the fiscal year end. The governor also plans to ask for up to $5 billion of emergency GO borrowing (equal to about 13% of current budgetary spending) to meet fiscal 2020 and 2021 revenue shortfalls, although it is uncertain whether such borrowing is allowable without a popular vote. The governor is expected to release an updated fiscal 2021 budget proposal by May 22.

New Mexico

When New Mexico adopted its fiscal 2021 budget based on a December revenue forecast, it expected to end fiscal June 30, 2020, with general fund reserves equal to $1.89 billion, or 26.7%, of recurring appropriations, and projected its fiscal 2021 budget would end with a sizeable $1.90 billion of total reserves, or 25.0%, of recurring appropriations. However, the recent fall in oil and gas prices and production has been swift and is expected to cause a dramatic fall in revenue. In May, the state released a preliminary updated revenue forecast that now projects up to a $483 million decline in fiscal 2020 revenue from the December forecast, or 6.8% of recurring appropriations. The state expects to issue a finalized revenue forecast in mid-June, shortly before an expected legislative special session called to make budget adjustments. The state believes that the outcome of the special session will enable it avoid fully depleting reserves. However, in our view the oil and gas market will remain weak for several years, and we believe that ongoing budget pressures may persist for some time.

New York

New York enacted a fiscal 2021 budget similar to the spending levels proposed by the governor. The budget also included increased budget authority to allow for expenditure cuts throughout the year to maintain balance as fiscal stress associated with the pandemic mount. Currently the state projects a $13.3 billion gap (14% of operating fund receipts) for the year. To mitigate the gap, the state's plan relies on expenditure reductions absent any future federal aid. The expenditure cuts are concentrated ($8.2 billion) in a broad spending category known as "Aid to Localities." Despite these pressures the plan maintains reserve balances to help manage liquidity. At fiscal 2021 year end, rainy day reserves are estimated at $5.6 billion (including monetary settlements); 7.6% of total estimated state tax receipts or 5.8% of estimated taxes and miscellaneous receipts. (For more information, see our report, "New York State's Spending Cuts, Strong Management Offset Its Fiscal 2021 Financial Plan Challenges," published May 13, 2020.)

North Carolina

North Carolina has operated during its fiscal 2020-2021 biennium with spending levels similar to the prior biennium after the governor vetoed the legislature's budget in June 2019. However, the governor and legislature agreed on some spending level increases enacted in separate bills. The lack of a complete budget was the result of policy disagreements, rather than large structural financial gaps that need to be closed. Tax collections were down 35% in April compared to the same month last year, and only down 4% year-to-date through April compared to fiscal 2019. Following appropriation from reserves for Hurricane Florence, the state had approximately $1.25 billion in its Savings Reserve Account at the end of fiscal 2019, approximately 6% of the governor's proposed fiscal 2020 spending levels.

North Dakota

North Dakota's enacted biennial budget was adopted in 2019. The state began the biennium with strong revenue growth projected through 2021 with a fiscal 2019 ending balance of about $1.3 billion, or about 30% of general fund biennial expenditures across its general, budget stabilization, and strategic investment funds. Additionally, the state's legacy fund totaled $5.85 billion (130% of expenditures) at the end of fiscal 2019 and was projected to reach $7 billion at the end of 2021. The state's current budget projects $4.9 billion in direct oil-related revenues, of which about $400 million is deposited in the general fund. The forecast, however, assumes WTI crude oil prices of $48.50 per barrel as of January 2020 that gradually transition to $48 per barrel by June 30, 2021, which is significantly above current WTI prices. Although the state has not published updated projections reflecting recent economic effects on its biennial tax revenues, we now believe that the biennium will face significant revenue declines, which will dampen North Dakota's financial picture and economic output through 2021.

Ohio

Although Ohio is in the first year of its 2020-2021 budget, the constitution effectively precludes the state from ending a fiscal year with a deficit. Following a sharp $866.5 million (or 35.3%) decline in monthly revenues in April, the state faced a general revenue fund shortfall of $777 million below estimate for the fiscal year. Concurrently, the state announced $781 million in budget reduction measures across several primary program areas, including Medicaid. These budget reduction measures are in addition to the state's earlier efforts to freeze non-essential expenditures across agencies. The administration expects these adjustments to the fiscal 2020 budget to be sufficient to balance the budget at fiscal year end June 30 and preserve the $2.69 billion budget stabilization fund balance, which equates to roughly 8% of fiscal 2020 expenditures and 4% of biennial budget expenditures. Although the state has not yet revised its revenue forecast for fiscal 2021, it expects to develop a revised spending plan for the second year of the biennium.

Oklahoma

The Oklahoma legislature overrode the governor's veto to approve a $7.7 billion fiscal 2021 budget plan, which was $420 million, or 5.2%, below the enacted budget for the current fiscal year. In our view, the budget incorporates one-time sources, including $244 million from the state's constitutional reserve fund (CRF) balance and directs approximately $180 million for the Department of Transportation's ROADS Fund to the Education Reform Revolving Fund. The fiscal 2021 budget also reduces appropriations to most agencies by approximately 4% over the next year, while implementing a 2.5% cut to K-12 common education and distributing a portion of the state's nearly $1.5 billion in CARES Act funding. In April, the Board of Equalization declared a revenue failure of $417 million, or a roughly 6% revenue shortfall for the remainder of fiscal 2020. In a special session, the legislature approved the transfer of funds from the CRF to close the estimated revenue failure, and it did not reduce agency appropriations for fiscal 2020. Based on the projected revenue failure, Oklahoma's combined reserves would be $620 million, or approximately 8.9% of fiscal 2020 general fund expenditures at year-end.

Oregon

Oregon's adopted combined general fund and lottery expenditures totaled $23.67 billion, roughly 12% greater than the preceding biennium. A revised forecast was presented on May 20, which takes into account the anticipated declines in revenues as a consequence of the pandemic and recession. The state's forecast reflects revenue declines of nearly 11% relative to the preceding biennium. Reserve levels are now projected to total 9% of biennial general fund expenditures. Net available resources are now estimated to be 5% lower than the 2019 close of sessions forecast.

Pennsylvania

Pennsylvania is facing a sizeable budget gap as officials have projected a shortfall of up to $5 billion (approximately 13.9% of general fund expenditures). For April, the Department of Revenue reports that general fund revenue collections came in below estimate by $2.2 billion or 49.7%. Nearly 80% of this underperformance can be attributed to moving deadlines for various taxes and officials expect most of this lost revenue will be made up in fiscal 2021. For the fiscal year to date through April, general fund revenues are $2.2 billion, or 7.4%, below estimates. Actions taken to address budgetary pressures thus far include, among others, a general hiring freeze, temporarily freezing pay for 9,000 public employees, and banning state agencies from non-essential purchases. The general assembly has remained in its 2019-2020 regular session as many legislators have opted to participate virtually.

Rhode Island

Rhode Island suspended it legislative session in March in the interest of the public safety and containing the spread of the COVID-19 outbreak. Both houses expect to return in May to complete work on a fiscal 2021 budget, effective July 1. The state's Revenue Estimating Conference (REC) provided new revenue projections that estimate nearly 10% less revenue in fiscal 2020 and fiscal 2021 due to the secondary economic effects of COVID-19. State general revenue is projected to decline to $3.9 billion (or 7.2%) for the current fiscal year from $4.02 billion for fiscal 2019, or $281 million less than officials estimated at the November 2019 REC. For fiscal 2021, officials project an additional revenue decrease to $3.73 billion, which is $516 million less than November 2019 REC estimates. Following a $237.9 million (or 46.6%) decline in monthly revenues in April, the state faces a fiscal year-to-date general revenue fund shortfall of $139.9 million. The state's budget stabilization fund was estimated at $203.7 million, or nearly 5.1% of general fund expenditures, for fiscal year 2020, which we consider good.

South Carolina

Before the recession began, South Carolina was expecting a $568 million budget surplus for fiscal 2020 due to strong economic and revenue growth that had exceeded original expectations. In April, the state's Board of Economic Advisors reduced its official fiscal 2020 general fund revenue forecast by $507 million, or almost 6% of budget), and reduced the fiscal 2021 general fund revenue forecast by almost $644 million. South Carolina's general assembly did not finalize a fiscal 2021 budget during the regular session and instead passed a continuing resolution maintaining fiscal 2020 spending levels into fiscal 2021. The legislature also authorized $250 million in appropriations from the contingency fund if needed for COVID-19 costs which, if used, would result in what we view as still-good budgetary reserve levels of more than 7% of budget at the end of fiscal 2020, although federal CARES Act funding could potentially offset this spending. The legislature plans to reconvene by September to finalize the fiscal 2021 budget.

South Dakota

South Dakota's fiscal 2020 structurally balanced budget estimated reserves slightly above 10% of appropriations. The commissioner of the Bureau of Finance and Management can use general revenue replacement fund balances, if necessary, to balance the annual budget due to an unforeseen revenue shortfall. The adopted 2021 budget is effectively flat relative to fiscal 2020's revised budget and is currently balanced without the use of reserves. Due to the fact that the COVID-19 outbreak in the state was relatively later than other in other states, the direct budgetary impact may be slightly delayed.

Tennessee

Tennessee's enacted fiscal year 2020 budget was structurally balanced with a budgeted $255 million transfer into the rainy day fund, bringing the balance up to $1.1 billion, or approximately 7% of appropriations for fiscal 2020. When including an additional projected $311.3 million from the TennCare reserve, total reserves at fiscal year-end 2020 would be approximately 9.4% of appropriations. Fiscal year-to-date (April) revenue collections are down 1% relative to budget. The adopted 2021 adopted budget is effectively zero-growth with reserves approaching $1.8 billion or slightly more than 11% of general fund appropriations for the fiscal year.

Texas

Texas entered 2020 with overall strong credit fundamentals, supported by favorable demographic trends, broad and diversified economic expansion, and strong budgetary performance. The budget totals roughly $248 billion in all funds, 3.6%, or $8.5 billion, greater than the preceding biennium. The general revenue-funded portion, representing nearly $118.3 billion of the total, is $10.2 billion (9.5%) more than the 2018-2019 biennium. In October, the comptroller's office estimated the Economic Stabilization Fund total is $9.35 billion by the end of the current biennium 2020-2021 biennium (8% of general-revenue funded appropriations), which we anticipate will be revised down when revenue estimates are revised later this summer. The legislature will not convene next until January 2021, at which point it will develop its next budget and supplemental budget to close the current biennium. Through April, general revenue fund revenues were down 3% (net of federal funds) relative to fiscal year 2019.

Utah

In April, Utah's legislature held its third and fourth special sessions in order to help address the budgetary pressures brought on by the pandemic. Lawmakers addressed funding challenges for fiscal 2020 and formally accepted federal funds, leaving $102 million of ongoing revenue unappropriated (approximately 1.2% of combined general fund and education fund expenditures). The state is operationalizing its budget stress testing plan which includes bonding for infrastructure instead of cash-funding and using various other tools before considering any draws on formal reserves. On the revenue side, combined general fund and education fund collections through April underperformed estimated growth rates by 1.7% compared to the February 2020 consensus forecast (which accounted for an $840 million shift in income tax payments to fiscal 2021). Consensus revenue targets are expected to be updated again in early June and management expects additional special sessions to address the fiscal 2021 budget.

Vermont

Vermont's legislature postponed it session in March before adopting remote voting on April 8. Officials project that general fund revenue will underperform the January 2020 forecast by 4.0% in fiscal 2020 and 14.0% in fiscal 2021. It is estimated that $142.9 million of general fund revenues will shift from fiscal 2020 to fiscal 2021. Currently, the state is expecting the fiscal 2020 year will see a general fund deficit of $195 million or about 11.5% of general fund appropriations and transfers. In response, an additional budget adjustment act was proposed to address the shortfall that calls for $56 million of various adjustments. The remaining gap is expected to be resolved by withdrawing $138.4 million from reserve accounts. This represents 61.7% of total reserves (i.e. the rainy day fund, general fund stabilization reserve, human services caseload reserve, and 27/53 reserve). Management expect the funds would be paid back in fiscal 2021 after deferred personal income tax revenues are received.

Virginia

In April, Virginia adopted a 2021-2022 biennium budget which delayed $2 billion in planned new spending and certain revenue increases compared to the initial proposed budget; however, officials expect further budget adjustments for the next biennium once an official revenue reforecast is released in the next couple months to incorporate the effects of the COVID-19 recession. Revenue collections through April 2020 fell 26% compared to April 2019 due largely to shortfalls in income tax receipts. Virginia amended its current budget to achieve some savings and redirected $600 million that was initially planned for year-end reserve deposits. Officials currently estimate combined year-end fiscal 2020 reserve of about $1 billion, representing 4% of expenditures, which we view as adequate but lower than previous estimated reserves of almost $1.6 billion, or 7% of expenditures.

Washington

Prior to the March 12 adjournment of the 2020 legislative session, Washington's lawmakers passed a supplemental operating budget for the fiscal 2019-2021 biennium and approved a $200 million transfer from the budget stabilization account for disaster response and unemployment. Three weeks later and in response to the pandemic, the governor issued several line-item vetoes reducing the fiscal 2020 supplemental operating budget by $235 million (0.4%) for the fiscal 2019-2021 biennium and by $210 million for the 2021-2023 biennium. The governor reduced spending further by issuing an executive order on May 13 that freezes certain hiring, personal service contracts, and equipment purchases. The state's Economic and Revenue Forecast Council's unofficial forecast as of April 30 projects negative impact to the combined general fund, education legacy trust account, and opportunity pathways account of $3.8 billion (7.2%) in the fiscal 2019-21 biennium and $3.3 billion (5.8%) in the fiscal 2021-23 biennium. The next official quarterly forecast is expected to be released on June 17.

West Virginia

West Virginia has enacted a $4.6 billion fiscal 2021 budget similar to the governor's proposal. The budget is $120 million more than the prior year and includes out-year budget gaps, a reversal from 2020's forecast, due to declining energy prices. Education (K-12) spending continues to remain a focus area, accounting for approximately 45% of total general fund appropriations. Also included in the budget are appropriations to fully fund the required contribution for all pension plans. In December, the rainy day reserve was around $842.7 million, or approximately 18% of fiscal 2021 appropriations. As of April, year-to-date general fund revenues indicate a negative variance of $198.7 million (negative 5%) of estimated collections for fiscal 2020. Outside of reserves, the state has a history of making mid-year spending reductions when revenues under perform.

Wisconsin

Wisconsin is in the first year of its fiscal 2020-2021 biennium, and the Legislative Fiscal Bureau reported the state's overall financial position had held steady as general fund tax collections were $818 million ahead of fiscal biennium estimates. While the state has not revised its January revenue estimates since the onset of the pandemic, the governor and Department of Administration have responded by ordering a 5% reduction is agency spending for the remainder of the fiscal year, which would allow approximately $70 million to lapse. Fiscal 2020 year-to-date revenue collections in April were approximately $313 million below the first 10 months in the previous fiscal year. While the legislature is currently not is session, it could consider a budget repair bill in the second year of the biennium should a structural imbalance occur. The state estimates that the budget stabilization fund will have a balance of $655 million at the end of fiscal 2020, or approximately 3.6% of fiscal 2020 general fund appropriations.

Wyoming

Wyoming does not have an income tax, but does have a significant dependence on coal, oil, and gas mining related revenue. An updated revenue forecast, expected to be released shortly, will likely show a steep decline in revenue compared to the biennium budget. However, the state began the biennium with huge reserves, which it has been gradually drawing down in recent years. Combined Budget Reserve Account and Legislative Stabilization Reserve Account balances were projected to be $1.8 billion at fiscal 2019-2020 biennium end, or about 73% of half of combined general fund and school foundation account biennium appropriations. The adopted 2021-2022 biennium budget would draw these balances down to $1.5 billion, but the drawdown could be more once the updated revenue forecast is released and the state holds an expected special legislative session shortly afterwards.

Primary Credit Analyst:	Ladunni M Okolo, New York (1) 212-438-1208; ladunni.okolo@spglobal.com
Secondary Contacts:	Geoffrey E Buswick, Boston (1) 617-530-8311; geoffrey.buswick@spglobal.com
	Sussan S Corson, New York (1) 212-438-2014; sussan.corson@spglobal.com
	David G Hitchcock, New York (1) 212-438-2022; david.hitchcock@spglobal.com
	Timothy W Little, New York + 1 (212) 438 7999; timothy.little@spglobal.com
	Cora Bruemmer, Chicago + 1 (312) 233 7099; cora.bruemmer@spglobal.com
	Jillian Legnos, Hartford (1) 617-530-8243; jillian.legnos@spglobal.com
	Oscar Padilla, Farmers Branch (1) 214-871-1405; oscar.padilla@spglobal.com
	Thomas J Zemetis, New York + 1 (212) 438 1172; thomas.zemetis@spglobal.com