The global pandemic caused an unprecedented economic disruption across the nation. But two years in, state and local tax revenues are growing by double digits, much faster than state and local economies. The large gap between growth in revenues versus economic activity is an indication that some of this strength is related to temporary factors or adjustments and not necessarily indicative of likely continued growth.

The recent surge in state tax revenues is largely attributable to factors such as the robust stock market, the record number of initial public offerings (IPOs), higher inflation, the boost in spending on taxable goods, and anticipation of (possible) federal tax hikes.

The longer-term outlook for state and local budgets remains uncertain.