State Spending's Slow Growth in 2015 Shows Tepid Budget Recovery

With most of the new money going toward education and Medicaid and expected pushes for tax cuts from new Republican lawmakers, the competition for the limited leftovers remains fierce.
by | December 9, 2014

State spending is increasing for the fifth straight year but growth continues to be minimal and the competition for limited dollars remains fierce, a new report says.

States are expected to spend $22.7 billion more this year than in 2014 for a total of $748 billion from their general funds, a report released Tuesday by the National Association of State Budget Officers (NASBO) shows. But much of that 3.1 percent increase will be gobbled up by rising costs in education and Medicaid, leaving little opportunity for increased spending in other areas.

“There’s not a lot of new money available,” said NASBO Executive Director Scott D. Pattison during a conference call with reporters. “Outside of maybe some tax cuts some states will want to do in January, I really think this is one of those continued situations where as new money comes in, it goes toward continued expenses in health care [and] education.”

More than two-thirds of the increased spending is going towards K-12 education and Medicaid. Thirty-nine states enacted general fund spending increases for K-12 education while 36 increased spending for Medicaid for their 2015 budgets. Public assistance was the one category that saw spending cuts; 12 states cut funding, resulting in a net decline of $590 million.

The graph below indicates increases in state spending by category.

SOURCE: The National Association of State Budget Officers 2014 Fiscal Survey of the States

On the positive side, state budgets are stabilizing following the wild swings of the recession. A relatively small number -- seven -- are poised to make mid-year budget cuts before the 2015 fiscal year ends for most states on June 30. That’s compared with a recent high of 41 states making emergency cuts in 2009. Even in 2007, a peak revenue year for governments, a total of 13 states had to make mid-year cuts, according to NASBO.

But the revenue growth has remained slow. This year’s 3.1 percent spending increase is far below the 5.5 percent year-over-year average recorded over the 37 years NASBO has been conducting the budget survey. In fact, in no year since the recession has spending growth matched the nearly four-decade average. Even more alarming: This year’s total general fund spending of $748 billion is still 2 percent below the pre-recession peak, after accounting for inflation.

Pattison said those trends confirm that the Great Recession was a-typical -- and so is the recovery.

“If we continue to see this for another two to three fiscal years,” he said, “we have to assume we are in a new economic era that’s affecting the spending and revenue of the states.”

That means continued jockeying for the limited funds beyond health care and education spending. While competing for limited funds is not uncommon to any fiscal year, that will play against an expected push for tax cuts in state legislatures next year as new Republican lawmakers seek to fulfill campaign promises.

Mike Morrissey, NASBO president and deputy chief of staff for Texas Gov. Rick Perry, said the increased competition could also lead to more states looking to analytics to determine where their dollars could go the furthest.

“As this slow growth continues, it seems to me that performance measurement has gotten a new life,” he said during the conference call. “People making those decisions are really grappling for a way to explain what works or how to justify a decision ... and what programs are more likely to achieve desired results.”