State Budgets Recover To Pre-Recession Levels


A new report released yesterday by the National Association of State Budget Officers (NASBO) shows that state budgets have largely recovered to pre-recession levels adjusted for inflation.

Although it appears that recovery has finally been achieved after eight years, report authors are quick to note that budget increases state-to-state have been uneven and many are still dealing with the aftermath of the crisis. “Though aggregate, 50-state, general fund expenditures and revenues have reached their pre-recession peak levels, after adjusting for inflation, 29 states fiscal 2016 general fund expenditures remain below fiscal 2008 figures and 23 states report general fund revenues lower than their fiscal 2008 levels,” the report says.

For 2016, total general fund expenditures have grown by 5.5 percent in aggregate, but many states have seen much smaller increases. Part of the 5.5 percent growth rate is also accounted for in large one-time purchases by state governments that may not be replicated in other states down the line. Some thirty-two states estimate positive general fund revenue growth of less than five percent.

Revenue growth is expected to remain limited over the near term. The report forecasts revenue growth of only 2.9 percent in 2017, with the bulk of that coming from sales tax and personal income tax. With such modest revenue growth on the horizon, governors are proposing some spending increases but overall budgets are likely to hold steady.

In the most recent legislative session, thirteen states proposed net tax and fee increases. That’s in contrast to the fifteen states that proposed tax cuts. Of the thirteen that recommended tax increases, the two most significant bumps were Pennsylvania, where the governor recommended an increase of $2.7 billion and Louisiana which saw a $1.2 billion bump.

The uneven approach state governments are taking to tax revenue with some calling for increases while others have made cuts is likely to net out to a wash in terms of aggregate budget stability. However, alongside the pockets of distress that were a holdover from the financial crisis, there are also a few states in trouble as a result of their own poor policy decisions. States like Kansas are teetering on the verge of insolvency after drastic tax cuts blew a hole in the state budget. Situations like Kansas’ can lead to greater instability if not contained.

Report authors note that long term issues like education could also have a negative impact on budgets going forward. “Looking ahead, states across the country continue to face budgetary challenges, including: spending requirements on K-12 education, health care and other core service areas growing faster than state revenues; unfunded pension liabilities; a pent-up need for infrastructure investment; and the fiscal and economic impacts of declining oil prices. With slow revenue growth expected to continue in fiscal 2017, governors are recommending mostly modest spending increases for the next fiscal year, with many also calling for increasing rainy day fund balances to help prepare for the next economic downturn,” authors conclude.

Read the full report here.

** Image Source: NASBO