Late State Budgets Are Less Common This Year. There's 2 Big Reasons for That.
Still, a few states may miss the July deadline, leading to a government shutdown in some.
- More states have passed or are close to passing a budget compared to this time two years ago.
- The rise of one-party states and of state revenues has eased the budget process.
- Some states may pass their budgets late, including New Jersey and Pennsylvania.
With less than two weeks before the new fiscal year starts for most states, there has been relatively little of the last-minute drama that’s dominated budget debates in recent years.
As of Tuesday, 39 states had either passed a budget or had one awaiting a governor’s signature, according to the National Conference of State Legislatures. That’s a far cry from 2017 when 11 states started the fiscal year without a signed budget and another 10 had to call a special session to approve one after missing the initial deadline.
The drama was partially the product of divided government and tight finances -- both of which are less of an issue today. The rise of one-party states has led to less political gridlock. Democrats or Republicans now hold both the governor's office and the legislature in 36 states, one of the highest numbers in recent memory.
But the bigger reason so many states have passed a budget without theatrics this year is that revenues are in good shape. At least 28 states are on track to exceed their projected revenue collections for the current fiscal year, according to a new report from the National Association of State Budget Officers (NASBO).
"There were a lot of decisions that we thought were going to be difficult and challenging, and they weren’t," says Fitch Ratings analyst Eric Kim. "We saw that budget passage has been eased by having more revenue than anticipated."
What States Are Spending Money On
A total of 47 states are calling for a spending increase in fiscal 2020, one of the highest numbers in recent memory. About half of those states are planning for increases of at least 4 percent.
To fund those increases, states are largely relying on economic growth and tax hikes. Many states, for example, have begun collecting sales taxes from online sellers following a U.S. Supreme Court decision last year that permitted the practice. New Jersey is considering a millionaire’s tax, and New York has renewed its higher tax rate on high-income earners.
Most states will again spend that extra money on education -- a big focus last year after teachers went on strike and protested throughout the country. Nearly $2 out of every $3 dollars in new spending are being directed toward K-12 and higher education, according to NASBO.
Transportation funding, another neglected area following the Great Recession, is also getting a boost this year, largely through raised taxes and fees. Alabama, Arkansas and Ohio raised their gas tax rates, joining more than two dozen states that have done so in recent years. Some states are creating new electric vehicle fees and raising other fees as a means of raising transportation revenue, according to NASBO.
Legalizing recreational marijuana was a hot topic in some legislatures, including New Jersey, New York and Vermont. But it fizzled out everywhere except Illinois, which became the first state to legalize the sale of the drug through legislative approval. In most states, it has passed at the ballot box.
States Still Struggling to Pass a Budget
Despite the lack of widespread drama, there still may be a few states with late budgets this year.
In New Jersey, one-party control hasn't prevented disagreements. Democratic lawmakers introduced their own state budget on Monday that scraps Democratic Gov. Phil Murphy’s millionaire’s tax, setting up an 11th-hour showdown that could lead to a state government shutdown.
In Pennsylvania, leaders of the Republican-controlled legislature are drafting a counterproposal to Democratic Gov. Tom Wolf’s $34.1 billion budget, which includes a $2 billion spending boost over the current year. Key debates in the coming weeks will revolve around funding for low-income affordable housing and infrastructure projects.
And in Alaska, GOP Gov. Mike Dunleavy called a second special session to begin July 8 to address the state capital budget and this year’s Permanent Fund Dividend payment to residents. The governor is expected to sign the operating budget that passed last week.
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