Why a Record Number of States Passed Budgets Late This Year (If at All)

Politics and finances are largely to blame. But some say it's a trend not worth worrying about.
by | September 7, 2017
Hourglass runs out.
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As the number of split-power statehouses has increased in recent years, so too have late state budgets.

A whopping 11 states started their current fiscal years without a signed budget, and another 10 missed their initial deadline and had to call a special session to approve a spending plan. It’s the highest number of stalled budgets in recent memory and the product of increasingly tense political and economic factors.

“I have never seen it this widespread,” says Donald Boyd, director of fiscal studies with the Rockefeller Institute of Government.

Over the past five legislative sessions, the number of stalled or late state budgets has steadily increased, according to a Governing analysis of National Conference of State Legislatures data. In 2013, just five states were forced to call a special session to pass their fiscal 2014 budget, but all were signed before the start of the fiscal year. But ever since, special sessions and late budgets have been a regular occurrence.

 

SOURCE: National Conference of Legislatures data compiled by Governing

 

Boyd notes that despite having recovered from the Great Recession in most ways, many states are still experiencing some kind of fiscal stress. States such as Alaska, Connecticut and Illinois are all facing multibillion-dollar deficits. Meanwhile, an increasing number of states are dealing with budget shortfalls even after they approve a spending plan.

A big reason for states' continued money problems is that the growth of their fixed costs is outpacing their annual revenue growth. “Pensions and Medicaid dollars are growing quickly,” Boyd says, “and not leaving much money to spend on the things you want to do.”

Politics are also to blame. The 2014 elections resulted in an increase in split-power states where the executive and legislative branches are controlled by different parties. Starting in 2015, at least half of the late or stalled budgets were in split-power states or where the legislature was split between two parties.

Case in point: Illinois’ notorious two-year budget gridlock started when its Republican governor took office and began clashing with the Democratic-controlled legislature over spending.

Some of the other reasons behind stalled and late state budgets have been more topical. Wisconsin, one of two states still without a signed budget this year, is stalled over transportation funding. Otherwise, it has relatively healthy finances. In fact, Moody’s Investors Service just upgraded the state’s credit rating, citing its manageable fixed costs, conservative budgeting and steady economic growth. Late budgets in Maine, New Jersey and Rhode Island were also over similarly singular issues.

Still, some caution against calling the increasingly stalled budgets a new trend.

 

Moody’s analyst Nicholas Samuels notes that of the 11 states that started their 2018 fiscal year without a budget, most adopted one in a matter of weeks. In addition, most states have plenty of policies and procedures in place to run smoothly in spite of a late budget. In other words, simply having a late budget “isn’t necessarily a concerning factor,” Samuels says. “But the underlying causes could be.”

For example, Samuels says, some states are struggling under the weight of a systemic financial imbalance that prior budgets have papered over with one-time fixes. It’s becoming harder and harder each year to ignore the underlying problems as slow revenue growth and spending pressures mount.

Samuels points to Connecticut, which has struggled with annual budget deficits in the face of shrinking revenues and increasing costs. It is the other state that has yet to pass a fiscal 2018 budget as lawmakers try to solve a $3.5 billion budget gap over the next two years. The state’s late budget, though, doesn’t come as much of a surprise: It has been downgraded by ratings agencies several times over the past few years, mainly because it has solved its chronic budget shortfalls with one-time solutions.

Connecticut’s not alone in papering over budget shortfalls until it hits a wall. Illinois and Pennsylvania have routinely passed late budgets in recent years and have also faced downgrades for their chronic deficits.