As the pandemic and lockdowns swept the country in the early months of 2020, many states braced for the worst. Slowdowns in economic activity, a weakened travel and tourism industry, small-business closures, and increased unemployment all pointed to the likelihood of a prolonged fiscal slump. But after bottoming out in the spring of 2020, state revenues have been climbing ever since.

Fiscal exuberance now fills the air, with some governors signing the biggest budgets and recording their states’ largest revenue increases in history. State revenues are on average 19% higher than they were at the same time last year. On paper, state and local balance sheets are looking better than they have in a long time.