The fiscal condition of U.S. states continues to improve as revenue and spending rise, but the gains are modest, and many states are still not back to their pre-recession financial levels, says a new report from the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO).
The latest NGA-NASBO biannual "Fiscal Survey of States," released on Dec. 14, says that states’ total general-fund revenue for fiscal year 2013 is expected to rise 3.9%, to $692.8 billion, finally bringing income above the pre-recession 2008 mark. For most states, fiscal 2013 will end next June 30.
Scott Pattison, NASBO executive director, says, “We’re seeing relatively lackluster growth, but we are seeing growth.” He says the revenue trend is positive, “but it’s not enough growth to allow for enough money to be available to make up for all of the past cuts that have taken place since the beginning of the recession.”
Moreover, Pattison notes, in inflation-adjusted terms, cumulative state revenue is still 8% below the 2008, pre-recession level.
Twenty-four states have enacted 2013 budgets that are still below their 2008 spending levels. Pattison says, “The data really shows that money’s going to be tight for the foreseeable future—for several years at least.”
States see challenges ahead, including the threat of the year-end "fiscal cliff" and its federal tax hikes and spending cuts. Dan Crippen, NGA executive director, notes that, given current discussions about the federal fiscal crisis, “the only outlook for states has to be that there are fewer resources coming from Washington.”
Crippen says reductions in federal funding, whether through mandatory budget "sequestration" cuts or other actions by congressional appropriators, will include defense programs, which will have a negative impact on states' economies.
Federal grants to state and local governments also will be pared, Crippen says. In transportation, he says, "The Highway Trust Fund has reduced funding, and there’s not a prospect any time soon, I suspect, of Washington raising gas taxes or replenishing the Highway Trust Fund, so states are having to plug that hole, that declining resource, as well.”
One positive sign in the transportation sector is that, so far in fiscal 2013, only one state—Missouri—has imposed a mid-year reduction in its transportation spending. That cut was just $300,000.
The NGA-NASBO report focuses on states' general funds, not their capital budgets, which finance most infrastructure and other construction projects. But it does provide an important measure of states’ overall fiscal health, which affects capital spending.