NASBO 2022 State Expenditures Report shows an 18.1% surge in general fund spending

The National Association of State Budget Officers’ (NASBO) 2022 State Expenditures Report found total state spending to have grown an estimated 7.3% between fiscal years (FY) 2021 and 2022 ($2.66 to $2.86 trillion), 1.5 percentage points higher than the 36-year average growth of 5.8% per annum. This increase in state spending can be largely attributed to an 18.1% surge in general fund spending from FY 2021 to 2022 (following an increase of just 2.2% from FY 2020 to 2021) — the highest rate in the 36-year history of NASBO’s State Expenditure Report history. State spending from outside of the general fund (including bonds) also increased by 5.2% (to $725 billion), while state expenditures from federal funds declined by 0.2% (to $1.08 trillion).

State general fund spending increased in all program areas, ranging from a 0.1% growth in public assistance to a 245.8% growth in transportation.

Federal funding is estimated to have declined by 0.2% in FY 2022, mainly due to FY 2021’s elevated funding levels from aid-based programs such as the American Rescue Plan Act (ARPA) and Coronavirus State and Local Fiscal Recovery Fund (CSLFRF). However, NASBO reports that federal funding still “remains high by historical standards.”

The data used in this report accounts for “more than 99 percent” of total state spending, meaning that some data may slightly change once data has been fully collected. Fiscal year timelines vary from state to state, impacting when self-reported data is sent to NASBO.

A state’s total expenditures include spending from their general fund, other state funds, bonds and federal funds. General funds are used to budget for all revenues not explicitly handled by any other fund, and are responsible for financing the bulk of a state’s operations. General funds are filled primarily through taxes, with NASBO reporting that in FY 2022 personal income taxes, sales and use taxes, and corporate income taxes made up 83.6% of general fund revenue.

By state, in terms of general fund expenditures, California saw the largest percentage change (49.8%), representing a jump of approximately $80 billion in increased expenditures, followed by Rhode Island (34.7%), Kansas (28.4%) and Tennessee (24.3%). Of the total $161 billion increase in state general revenue spending from FY 2021 to FY 2022, $81 billion came from California (offsetting an identical decline in federally-funded state spending). Removing California from the picture would mean an increase in general revenue spending for the other 49 states of 11.0%. Only four states saw a decrease in general fund expenditures between FY 2021 and 2022: New Mexico (-0.4%), New Hampshire (-1.6%), North Dakota (-3.4%) and West Virginia (-8.3%).

Federal fund expenditures go toward the same seven categories as the state fund (see figure 1), albeit with large differences in allocation. In FY 2022, a near majority of federal fund dollars went towards Medicaid (49.8%), followed by the ‘all other’ category (28.1%), elementary & secondary education (11.1%), transportation (5.1%), higher education (3.5%), public assistance (1.9%) and corrections (0.5%).

As previously mentioned, overall federal funding is estimated to have declined by around 0.2% by the end of FY 2022. This is primarily due to a sharp drop in the ‘all other’ category (34.6% in FY 2021 down to 28.1% in FY 2022), which NASBO largely attributes to a decrease in unemployment benefits.

In terms of federal fund expenditures, Utah saw the largest percentage change at +60.2% in FY 2022, a nearly $4 billion increase over the prior fiscal year. Minnesota (46.1%), Alaska (36.2%), Michigan (35.6%), Louisiana (34.9%) and Maryland (30.7%) all increased their federal fund expenditures by more than 30% during that time.

However, federal fund expenditures dropped for 28% of states (14), led by Montana (-31.1%), California (-29.8%) and Georgia (-25.2%).

Despite a small overall decrease (-0.2%), on average, states increased their federal fund expenditures by approximately 9% between FY 2021 and 2022. A total of 24 states experienced double digit increases, with 13 of those states increasing 20% or more, and six states by 30% or more.

Current and past editions of NASBO’s State Expenditure Report are available here.