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NASBO: State Spending Will Slow in 2015

A new survey finds that 42 states plan on spending more next fiscal year than they did this fiscal year, but most increases will be relatively small.

All but eight states plan on spending more next year than they did this year. Most increases will be relatively small, however, because governments are pulling back on spending increases due to modest revenue growth, a new survey says.

State general fund expenditures are projected to increase by 2.9 percent, or a total of $750.5 billion in fiscal 2015, according to a survey released today by the National Association of State Budget Officers (NASBO). The dollar increase in 2015 is slightly more than the one in the 2014 fiscal year, which ends on June 30 for most states. However, the rate of spending growth is slower than the 5.5 percent average since 1979, said NASBO Executive Officer Scott Pattison.

Additionally, state spending in fiscal 2014 for the 50 states combined is still below the fiscal 2008 pre-recession peak after accounting for inflation, which indicates that state budgets have not fully recovered from the recession, the report revealed.

During a conference call with reporters, Pattison called that fact a “point of concern” adding that inflation-adjusted spending in 2014 is still 4.4 percent below 2008 spending.


Source: NASBO



Still, state budgets are better balanced this year. While six states have a combined $2.9 billion in remaining gaps that must be closed by the end of the fiscal year, it’s a vast improvement over the 18 states reporting $33.3 billion in budget gaps in fiscal 2013. An unrelated report released by the Rockefeller Institute of Government noted that 38 of the 41 states that impose broad-based personal income taxes collected between January and April declined by 7.1 percent compared with the corresponding period in 2013.

But the future is murky. The report warned that limited revenue growth and continued spending pressures for out-years mean that budget gaps are expected to increase in fiscal 2015 with 14 states projecting $8.6 billion in budget gaps. Additionally, state rainy day fund balances are shrinking. In fiscal 2013, total balances reached an all-time high in dollars of $73.5 billion, or 10.6 percent of general fund expenditures. In 2014, total balances fell to 8.6 percent of expenditures and are projected to fall again next year to 7.4 percent.

“It shows that there’s a lot of caution and that states use rainy day funds for other types of spending instead of just keeping them for reserves,” said Pattison.

A positive note can be found for local governments -- a total of 21 states have changes to their local government funding, generally targeting spending increases in K-12 education, community and technical colleges and infrastructure. However, the report adds, local government revenues have not recovered from the recession to the degree that state revenues have. Although finances are no longer deteriorating, progress is slow and areas “like employee health and retirement benefits continue to strain budgets,” the report said.

Liz Farmer is a former GOVERNING fiscal policy writer.
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