The Current State of State Budgets
A new report shows how states are managing their money.
State budgets continue to record modest growth but often not enough to keep pace with the cost of K-12 education, health care and other escalating items. That’s according to a report released Tuesday by the National Association of State Budget Officers (NASBO) detailing estimated fiscal 2015 financial figures and governors’ budget proposals for each state.
Overall, state spending is set to continue to climb in the new fiscal year, but at a slower rate than before. The NASBO survey finds general fund expenditures are projected to grow 3.1 percent in fiscal 2016 without accounting for inflation, down from a 4.6-percent gain the prior year.
Total state spending has grown each year since 2011 following cuts that states incurred in the aftermath of the Great Recession. Still, though, aggregate state spending remains slightly below its 2008 peak after adjusting for inflation.
This map shows states' proposed fiscal year 2016 expenditures compared to estimated totals for 2015, in nominal terms.
Illinois Gov. Bruce Rauner’s budget calls for spending cuts exceeding $3 billion -- more than any other state, according to the report. Some of the largest proposed cuts are aimed at Medicaid costs, along with higher education spending and state aid to local governments.
Winners, Losers in Budget Proposals
Governors in most states have presented budgets amounting to spending increases that exceed the current rate of inflation.
One area where the vast majority of states plan to increase investment is K-12 education. The NASBO survey indicated funding adjustments in this area account for roughly a third of the total increase in state spending for fiscal 2016, with governors in only six states proposing cuts. Higher education, by contrast, didn’t fare quite as well, with 15 governors’ budgets outlining cuts.
Transportation appears to be the big loser in budgets as it’s the only program area identified in the report slated for a decline in aggregate state funding. Fourteen governors have recommended transportation funding cuts, while only nine state budgets include increases (two of which are only $1 million).
Shifting State Revenues
A handful of states have become more reliant on sales taxes in recent years as other revenue sources declined. Changes have been most pronounced in states controlled by Republican governors who’ve sought additional sales tax collections to offset a portion of lost revenues stemming from income tax cuts. Ohio Gov. John Kasich’s budget proposal calls for a net increase in sales taxes of $1.1 billion, along with $2.4 billion in income tax cuts.
Governors in nine states have also targeted tobacco products for tax increases. So far, lawmakers have passed cigarette tax hikes in Kansas, Louisiana and Nevada. In Alabama, Gov. Robert Bentley has proposed tripling the state’s cigarette tax -- currently one of the nation’s lowest -- to help close a sizable budget gap. Lawmakers in Alabama and other states continue to weigh cigarette tax increases, but those approving measures will likely raise taxes less than the rate increases proposed by their governors.
Corporate income taxes are not projected to fluctuate much, with only Connecticut (+$273 million) and Pennsylvania (-$249 million) proposing notable changes for the upcoming fiscal year.
Governors in 16 states have proposed net increases in total taxes and fees for fiscal 2016. Twelve other governors presented budgets that would result in net tax declines: Arkansas, Florida, Idaho, Indiana, Maryland, Massachusetts, Minnesota, Mississippi, North Carolina, North Dakota, Ohio and Texas.
State Budget Strategies
Governors’ proposals outline a range of different strategies in balancing budgets. The NASBO report tallies the various budget strategies, grouping them into categories: