State and local governments across the United States are bracing for financial hardships due to the coronavirus pandemic. As the nation endures the extended economic impact of the pandemic, including the various mandated shutdowns of nonessential businesses, now is a good time to understand the basics of state budgets as well as how they change over the business cycle. In addition to exploring the effects of the anticipated recession on state budgets and the federal government’s efforts to aid the states, this article examines the expected nuances of this recession. It then takes a specific look at the Third Federal Reserve District states (Delaware, New Jersey, and Pennsylvania) to assess their preparedness to weather this economic downturn.

This article appeared in the Third Quarter 2020 edition of Economic Insights. Download and read the full issue.