States May Not See Revenue Recover Until Late 2021, Moody’s Says

Many U.S. states won’t see a recovery in tax revenue until late 2021 and may face “tough decisions” absent another round of federal aid, according to Moody’s Investors Service.

The ratings company said it expects tax collections for fiscal year 2021, which typically ends in June 30, to fall as much as another 5% before improving during the rest of the calendar year. Moody’s said it has a negative outlook on states, which is reflective of its view on credit conditions for the next year to 18 months.

“Nationwide, state tax revenue is rising from the deep trough reached immediately after the breakout of the pandemic in the U.S., but a full revenue recovery in many states is unlikely until late in calendar year 2021 at the earliest,” Moody’s analysts said in the report on Tuesday.

The firm’s outlook doesn’t take into account new federal aid from Congress. In the meantime, states could turn to deficit borrowings to close budget shortfalls and rely on reserves.

“Federal stimulus via another round of expanded unemployment benefits and other business and consumer support would help state revenue and states’ ability to manage the weak economy,” Moody’s said.

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