A bleak budget report: Our observations

The generally bleak biannual Fiscal Survey of the States report was released today by the National Association of State Budget Officers (NASBO). It contained quite a bit of dismal, though not unexpected, news. In 33 states, general fund revenues are coming in below estimates this year. Pension and health care costs continue to rise faster than inflation. Twenty-three states had to make mid-year budget cuts, the highest number since FY2010.

While general fund growth for the current year is 2.4 percent, expected spending growth is 4.1 percent (That’s excluding Illinois which throws off the figures because of its unique budget situation). General fund ending balances and rainy day funds dropped from $81.1 billion at the end of Fiscal Year 2016 to an estimated $69.4 billion this fiscal year. For 46 states, Fiscal Year 2016 ended June 30, 2016 and Fiscal Year 2017 ends June 30, 2017. (The most recent financial information in the report is from April.)

A hint of better news comes in the projections for next year’s budget, which are a bit more optimistic. One reason is that oil and gas prices have been rising – good news for natural resource states, if not for drivers. General fund revenues are projected to grow 3.1 percent in Fy2018. A bit of that expected growth comes from tax and fee changes, which are slated to bring in $3.7 billion more overall. Fifteen states are raising taxes or fees and twelve are reducing them. Most notable hikes are in Oklahoma, Pennsylvania and Washington.

Two powerful recessions in this century have generally heightened state caution. Although revenue is expected to grow 3.1 percent next budget year, spending is only going up 1 percent. States plan to add about $4 billion to rainy day funds in their upcoming budgets, with only seven states foreseeing declines in their rainy day fund balances. (Rainy day funds in 2017 held $49.6 billion, very close to the 2016 figure.)

The area in which the largest number of states plan budget cuts in Fiscal 2018 is higher education (19 states). K-12 education is the area that will see cuts from the least number of states (11).  Six states plan some cuts to employee benefits next year. They are Alaska, Connecticut, Illinois, Massachusetts, New Mexico and West Virginia.

We should point out that NASBO’s Fiscal Survey of the States focuses just on General Fund spending, which is about 40.4 percent of the total. Federal fund spending for states make up 31.2 percent, other state funds are 26.3 percent and bonds represent 2.1 percent.

Mosts and leasts:

State with the largest rainy day fund balance projected for FY2017: Texas with $10.2 billion

States with no rainy day fund balances in FY2017: Arkansas, Illinois, Kansas, Montana, New Jersey, North Dakota and Pennsylvania

State with the biggest spending increase planned for FY2018: Nevada at 7.3 percent

State with the biggest drop in spending for FY2018: North Dakota at -23.4 percent

State with the biggest mid-year budget cut: New York with $2.1 billion. (This was a decline in the transfer of General Fund revenues to General Reserves.)