State Revenues Return to Pre-Recession Levels (Sort Of)

While states as a whole are seeing their financial position slowly improve, the results have been uneven.
by | December 14, 2012
 

State revenues are poised to return to their pre-recession levels this fiscal year, according to an annual survey of state budget officials. But the effect is negated when inflation is taken into account.

Overall, the twice-a-year analysis of states' finances reveals that while there's been an increase in state revenue and spending in recent years, the improvements have been slight, and states still remain fiscally challenged.

"(W)e are seeing growth," said Scott Pattison, executive director of the National Association of State Budget Officers (NASBO), on a conference call announcing the figures. "That's certainly a positive thing, but it's not enough growth."

"The data really shows that money is going to be tight for the foreseeable future -- for several years at least," he added.

Overall, state general funding spending is projected to increase 2.2 percent this fiscal year -- less than half the historical average growth rate -- while general fund revenues are projected to increase 3.9 percent, according to the survey.

But Pattison cautioned that bigger revenue increases aren't necessarily a sure thing. Increases in income tax revenue drove much of the state revenue growth this year. But income tax receipts are notoriously unpredictable and will be impacted largely by what happens with the overall economy in future years. That, Pattison says, makes it almost impossible to predict when the fiscal situation for states will improve, especially considering that federal fiscal policies -- many of which are uncertain with the looming "fiscal cliff" -- will largely drive future economic growth or recession.

While states as a whole are seeing their financial position slowly improve, the results have been uneven. Twenty-one states this year are still reportedly projecting general fund revenue below FY 2008 levels, and 24 states are projecting less spending than they did in FY 2008.

The survey also highlights the growing challenges that health-care expenses -- including Medicaid and health benefits for current and retired state workers -- put on states.

Thirty-two states are increasing Medicaid spending this year by a total of $4.1 billion. Texas -- which is pursuing increased Medicaid spending pending the approval of the Legislature -- could add approximately $1.2 billion to that aggregate total, according to Michael Streepey, a NASBO analyst.

"The only (spending) that went up last year was Medicaid," said Dan Crippen, executive director of the National Governors Association, which helped publish the report. "This year, Medicaid again went up substantially."

The Affordable Care Act (ACA) is forcing states to make more tough choices about their Medicaid programs. If states choose to expand their Medicaid programs under the ACA, the feds will cover 100 percent of the costs of the new Medicaid patients from 2014 to 2016. But after that, the federal contribution will fall lower -- but no lower than 90 percent.

One area that's a particularly positive sign for states is the growth they've seen in their fund balances or reserves, which serve as a key barometer of a state's fiscal health.

In the wake of the recession, state's ate through their reserves as part of their effort to plug budget shortfalls. This fiscal year, states are projected to see their budget reserves rise to $61.3 billion, or about 9 percent of their general fund expenditures. That's a major improvement since FY 2010 when states saw those reserves at $32.5 billion or 5.2 percent of expenditures.

"Those are good indicators of cautious financial management going forward (as states) are trying to prepare for uncertainty, especially at the federal level," Pattison said.

State Balances Map

The following map shows total balances as a percentage of expenditures for fiscal year 2013. Click a state for figures from the NASBO and NGA survey for the previous three fiscal years. Please zoom out to view Alaska and Hawaii.

FY 2013 Balance as % of Expenditures
 
 
 
 
 
< 3% < 5% < 10% < 25% 25%+

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