Revenue Wave Fueled Fiscal 2023 Surpluses in All 50 States

Fiscal 2023 marked the first time in at least 22 years that no state had an annual deficit. But even with the record-setting number of annual surpluses, five states incurred long-term revenue shortfalls relative to expenses for fiscal 2009 to fiscal 2023. If left unmanaged, these ongoing gaps can threaten states’ financial well-being.

Although most states balance their budgets on an annual or biennial basis, budget documents do not offer a complete picture of their fiscal sustainability. States’ annual financial reports, on the other hand, provide a fairly comprehensive view of whether revenue—composed primarily of tax dollars and federal funds—has been sufficient to cover all state spending over the short and long terms.

At the beginning of the pandemic, the federal government acted quickly to deliver historic financial support to the states, which were forecasting multiyear revenue declines and spiking spending demands. But despite the additional federal funds, 19 states closed fiscal 2020 with an annual deficit—the most since the 2007-09 Great Recession—in part because of the delay in tax filings that shifted revenue collections to the following year.

Over the next three years, the states’ budget situation turned around, and by fiscal 2023, most were still riding the tail end of the revenue wave that followed the pandemic, in which revenue dramatically exceeded pre-pandemic trends. Fiscal 2023 also showed early signs that this period of abundance was waning, as total inflation-adjusted state tax collections declined outside a recession for the first time in at least 40 years. Although states still avoided annual deficits, shrinking revenue reduced the size of their surpluses: Of the 48 states with a surplus in fiscal 2022, 35 had smaller surpluses in 2023.

Comparing states’ total revenue with expenses in fiscal 2023 shows that:

• Wyoming recorded the largest surplus at 155.3%, a dramatic swing from being one of only two states with an annual deficit the year before. The shift resulted primarily from an increase in state revenue, largely driven by greater tax collections and investment income.
• After Wyoming, New Mexico (143.4%), North Dakota (130.5%), Alaska (128.1%), and Hawaii (124.6%) recorded the largest annual surpluses.
  • Like Wyoming, Alaska reported a significant turnaround from its prior year deficit. Both states have historically had volatile tax collections because of their dependence on global energy prices, though Alaska’s recent year-to-year shifts can be attributed to the state’s permanent fund investment earnings and interests.
• Although no state had a deficit, California had the lowest annual surplus at 101.8%, followed by Michigan (102.1%), Colorado (102.8%), Florida (104%), and Arizona (104.2%).
• 50-state median annual revenue was 111.3% of total expenses. Additionally, each U.S. Census Bureau region accumulated an annual surplus, with the median for the West leading at 112.7%, followed by the South (112.2%), Midwest (111%), and Northeast (109.9%).

Official accounting reports for fiscal 2024 are still pending for some states, but the available data shows that overall tax collections continued to fall. Fiscal 2024 saw the second consecutive year-over-year inflation-adjusted declines in tax collections for most states, primarily driven by the waning of temporary pandemic-related aid and revenue spikes and the adoption of widespread tax cuts. These factors, combined with continued expenditure growth, may throw more states’ finances out of balance.

States’ long-term ledgers

This indicator assesses state performance using two analyses: first, by examining states’ year-by-year financial records to identify how often they experienced shortfalls; and second, by comparing their total revenue with expenses over 15 years to uncover whether they finished the study period with a net surplus or deficit.

Over the long term, just five states recorded a 15-year shortfall at the end of fiscal 2023, down from six for the 15 years ending in fiscal 2022.

New York was the only state to reverse its long-term deficit status in fiscal 2023 after reducing expenses faster than revenue was declining for two years. The state’s spending and revenue both dropped in fiscal 2022 and 2023, but they were still much higher than before and during the early months of the pandemic. However, whether the long-term surpluses will persist into the years after the revenue wave remains to be seen, especially given that New York recorded deficits in 10 of the past 15 years and that its tax collections had already started to wane again in fiscal 2023.

Although states can withstand periodic deficits without endangering their long-term fiscal health, chronic shortfalls are one indication of an entrenched structural deficit in which, without policy action to correct the imbalance, revenue will continue to fall short of spending.

Comparing states’ total revenue with expenses, in aggregate from fiscal 2009 to 2023, shows that:

• The five states with long-term deficits were New Jersey (95.6%), Illinois (96.9%), Massachusetts (97.2%), Connecticut (99%), and Hawaii (99.1%). Each state experienced a deficit in at least nine of the 15 years studied.
• Alaska accumulated the largest 15-year surplus (126.9%), followed by North Dakota (124.6%), Wyoming (120.4%), Utah (113.3%), and New Mexico (110.3%).
• Montana was the only state to end each of the 15 years examined with a surplus. A total of 12 other states recorded just one deficit over the studied years: Alabama, Florida, Idaho, Iowa, North Carolina, North Dakota, South Carolina, South Dakota, Tennessee, Texas, Utah, and Virginia.
• The 50-state median revenue was 104.3% of expenses over the 15 years. Additionally, each census region accumulated a long-term surplus, with the median for the West leading at 105.4%, followed by the South (104.8%), Midwest (104.6%), and Northeast (102.3%).

Annual or biennial budget cycles can mask deficits because they allow states to adjust the timing of key financial events—such as when they receive cash or pay bills— to reach fiscal balance. For example, states can accelerate certain tax collections or postpone making some payments to balance the books. Zooming out from this narrow focus offers a longer-term lens that can clarify the long-term picture to help policymakers better align spending and revenue to address gaps between needs and available resources.

Year-by-year trends

Multiple factors can move a state’s annual revenue and expenses out of balance, including changes in the economy, policy, and demographics.

Looking at states’ balances year by year, shortfalls were most widespread during and immediately after the Great Recession, when in fiscal 2009 a record 46 states failed to amass enough revenue to cover their annual expenses. Another wave of annual deficits occurred in fiscal 2016 and 2017, as many states slogged through the weakest two years of tax revenue growth outside of a recession in at least 30 years. Except for the pandemic year of fiscal 2020, most states have reported regular annual surpluses since fiscal 2017, driven in part by widespread tax revenue gains and historic federal pandemic aid. New accounting rules that became effective in fiscal 2018 may have also played a role. These rules changed how states estimate unfunded retiree health care costs, lowering expenses in some states, at least on paper. As a result, fiscal conditions pre- and post-2018 are not directly comparable.

Delays in state reporting

The Government Financial Officers Association recommends that states publish their annual comprehensive financial reports (ACFRs) within six months of the close of the fiscal year, which means that, for most states, an ACFR for fiscal 2023 should be published by Dec. 31, 2023. However, many states are running behind these publishing standards because of widespread retirements among workers who complete the relevant accounting and audits, new accounting requirements, increased financial reporting demands associated with federal pandemic funding, and other factors. For the fiscal 2023 publication cycle, Illinois and Nevada did not release their ACFRs until mid-2025, at least 18 months past the recommended deadline. These delays can present serious challenges, such as hindering states’ ability to identify gaps between long-term spending and revenue, and may prompt credit rating agencies to downgrade or withhold states’ ratings.

Why Pew assesses fiscal balance

By taking a step back and considering how 15-year total revenue aligns with expenses, The Pew Charitable Trusts aims to help states evaluate whether they take in enough money to cover their expenses or need to change course to bring their finances onto a sustainable path. Rather than track cash as it is received and paid out, as budgets generally do, annual comprehensive financial reports attribute revenue to the year it is earned, regardless of when it is received, and assign expenses to the year they are incurred, no matter when the bills are actually paid. This approach captures deficits that can be papered over in the state budget process.

Accounting for funds in this way is like a family reconciling whether it earned enough income over 12 months not just to cover costs paid with cash but also to pay off credit card bills and stay current on car or home loan payments, rather than pushing some charges off to the future.

Importantly, however, just because a state raised enough revenue over time to cover total expenses does not necessarily mean that it paid every bill. When a state’s annual income surpasses expenses, the surplus is sometimes directed toward nonrecurring purposes, such as paying down long-term obligations such as unfunded pension or retiree health benefits or bolstering reserves. But in other cases, a state might use regular surpluses to create or expand services and to pay the associated recurring bills, while falling behind on annual contributions to its pension system or other existing bills.

So, although reviewing financial reports, rather than simply looking at annual or biennial budgets, captures states’ capacity to pay their bills, it does not reconcile whether revenue was used to cover specific expenses. Further insights can be gleaned from examining states’ debt and long-term obligations.

For instance, a state whose annual revenue falls short of expenses generally still balances its annual budget, turning to a mix of reserves, debt, and deferred payments on its obligations to get by.But states that are forced to rely on these strategies regularly risk a vicious cycle in which deficits lead to short-term fixes that exacerbate the deficits and harm residents and businesses. For example, because of chronic deficits, Illinois lawmakers regularly delayed payment to hundreds of vendors, including scores of small businesses and nonprofit organizations, for more than a decade. But this just made the problem bigger—the backlog peaked at $17 billion in 2017—because Illinois pays up to 12% annual interest on unpaid bills. (Despite recording surpluses in fiscal 2022 and 2023, Illinois still had a long-term deficit as of fiscal 2023.)

To avoid long-term outcomes such as Illinois’, states should seek to prevent structural deficits before they start. Pew recommends that states do this by using an analytical tool called a “long-term budget assessment”—which uses projections of revenue and spending at least three years into the future to evaluate whether the state is likely to experience deficits and, if so, why. For example, by conducting a long-term budget assessment, New Mexico discovered that starting in about 15 years it would face regular and growing deficits, driven mainly by expected declines in oil and gas production. In response, lawmakers used the state’s temporary surplus in fiscal 2023 to add hundreds of millions of dollars to various endowments and trust funds, which it anticipates will generate sufficient investment earnings to increase revenue in perpetuity and reduce the deficits. Because they take a forward-looking approach to structural balance, long-term budget assessments serve as a complementary resource to the retrospective of Pew’s state fiscal balance indicator.

Joanna Biernacka-Lievestro is a former senior manager and Page Forrest is an associate manager with The Pew Charitable Trusts’ Fiscal 50 project.