Latest Survey of State Budgets Points to Overall Fiscal Improvement

States have been slow to recover from the recession, but amid all the doom and gloom surrounding the national economy, state general fund expenditure trends are moving in a positive direction. The Spring 2012 Fiscal Survey of States finds governors' recommended budgets show an overall increase in both general fund expenditures and revenues in fiscal year 2013. There are, however, significant challenges ahead for states, including increased expenditures, particularly Medicaid costs and enrollment, and reductions in federal funding.

Fiscal 2013 budgets forecast that general fund revenues will reach $690.3 billion, surpassing peak pre-recession levels by $10 billion. Revenue collections are expected to be 3.7 percent above 2011 levels in sales, personal income and corporate tax collections, which make up 80 percent of general fund revenues. The report finds that growth from all of these sources produced greater collections than projected in many states.

When comparing current revenue collections to more updated forecasts, 15 states are above projections, 28 states are on target and three states are below. This suggests a number of states could finish fiscal 2012 with modest surpluses. State general fund spending also is expected to increase by 2.2 percent above the estimated amount spent in fiscal year 2013. This represents a third consecutive yearly increase in general fund expenditures following back-to-back declines in general fund spending in fiscal 2009 and 2010, decreasing by 3.8 percent and 6.3 percent respectively. However, even with the increase, general fund expenditures will be 0.7 percent below fiscal 2008 expenditures.

The survey found that 39 states proposed a 2013 budget greater than prior year spending plans, but at the same time, there are 25 states with a proposed fiscal 2013 budget where general fund spending is less than pre-recession levels in 2008. Fewer states are making mid-year budget cuts, which is a good indicator that state fiscal situations are stabilizing. Through the first 10 months of fiscal 2012, eight states have made $1.7 billion in mid-year cuts — an improvement from the prior year when 19 states made adjustments totaling $7.4 billion. This is a sharp contrast to 2009 when 41 states made mid-year budget cuts totaling $31.3 billion.

The biggest challenge to state budgets is increased costs of Medicaid, which represents the largest portion of state spending and is still outpacing overall general fund expenditure growth in governors' recommended budgets. This continued growth is attributed mostly to increased enrollment because of a lagging job market and higher health care costs. The survey is published twice annually by the National Association of State Budget Officers and the National Governors Association and is available at: http://www.nasbo.org/sites/default/files/Spring%202012%20Fiscal%20Survey....