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Slowing Economy? More States See Revenue Expectations Unmet

June 23, 2016

Much of the media coverage on the latest NASBO Fiscal Survey of States, suggests the Great Recession is finally behind the states as aggregate general revenue funds finally surpassed fiscal 2008 levels. But unlike the federal government, there are 50 individual state budgets and they tell very different stories, influenced by the economics, demographics, tax structures and politics of the particular state. For instance, while the aggregated stats sound rosy, a majority of states, 29, still reported 2016 general fund expenditures below the 2008 levels before the Great Recession really hit state revenues.  SSTI’s monitoring of state fiscal conditions reveals recent monthly revenues for a growing number of states – in months after the NASBO spring survey was conducted – are not meeting intake expectations. This might suggest FY 2017 revenue and spending forecasts may slow even more than NASBO’s reported 2.9 percent and 2.5 percent, respectively.

The unevenness of state fiscal conditions is evident in the NASBO report with the midyear adjustments states made, up or down, to current year budgets. NASBO found 15 states increased their spending plans to the collective tune of $3.5 billion, while 18 states made mid-year budget reductions by the third quarter of FY 2016 totaling $2.2 billion. According to NASBO, the number of states cutting spending midyear has grown from eight in 2014, and 14 in 2015, to 18 in 2016.

The Fiscal Survey indicates 19 states reported total general revenue funds were below expectations prior to April: Alaska, Arizona, Colorado, Connecticut, Florida, Idaho, Kansas, Louisiana, Massachusetts, Minnesota, Mississippi, New Mexico, New York, Oklahoma, South Dakota, Texas, Vermont, West Virginia and Wyoming. Since then, seven more states, according to published reports, reported monthly revenues for either April, May or year-to-date were not meeting projections: California, Indiana, Montana, Nebraska, New Jersey, Pennsylvania and Wisconsin. It is important to note, most of these seven states may not face year-end shortfalls just because of these fourth quarter adjustments in expectations.  Additionally, some of the 19 NASBO-identified states may have seen greater revenues during April and the final quarter, improving their outlooks.

Lower-than-expected revenue growth could suggest slowing state economies.  Among the revenue sources states include in their general funds are corporate taxes. While one might expect corporate taxes to be down in states heavily dependent on fossil-fuel exploitation, NASBO reported corporate tax receipts were not meeting FY 2016 budget designs for 22 states. At least three more states, Arizona, California, and Montana, have seen below-projection corporate tax receipts during one or more months post-NASBO survey. 

state budget