The June revenue forecast reduced estimated state revenues by $4.540 billion (8.7 percent) in 2019–21 and by $4.342 billion (7.8 percent) in 2021–23. While the current recession seems to be deeper than the Great Recession, there is hope that its duration will be shorter. Still, there are lessons to be gleaned from how the state Legislature responded to the Great Recession.

From the September 2007 forecast through the November 2011 forecast, revenues declined by a total of $12.640 billion (the 2007–09 forecast was reduced by 6.9 percent, the 2009–11 forecast was reduced by 20.2 percent, and the 2011–13 forecast was reduced by 11.0 percent). To address the revenue shortfalls, the Legislature cut policy level spending, used federal stimulus funds, increased taxes, made transfers to the GFS from other funds, and tapped the rainy day fund.

The state has already learned two major lessons from the Great Recession: A constitutional amendment was approved in 2011 requiring the transfer of three-quarters of any extraordinary revenue growth to the rainy day fund. And beginning with the 2013–15 biennium, the Legislature has been required to balance budgets over four years.

Thanks to these strong budget sustainability practices, the state budget is much better prepared to weather the current recession than it was in 2008. Nevertheless, state spending increased substantially in recent years, which will make the response more difficult than it would be if spending growth had been constrained.

A close examination of the state’s response to the Great Recession reveals other lessons for policymakers responding to the COVID-19 economic crisis:

• Use the rainy day fund.
• Don’t lead with tax increases.
• Treat federal aid as a temporary stopgap.
• Cut spending early.
• Eliminate low-priority programs instead of just suspending them.
• Anticipate additional revenue reductions.
• Maintain the four-year balanced budget requirement.

Going forward, the Legislature should also:

• Perform fiscal stress tests as a regular part of the budget process.
• Make Medicaid spending more transparent.

Read the report here.