State budget recovery likely years away, SSTI analysis shows

A new report from the Congressional Budget Office (CBO) indicates that the U.S. economy through 2030 will have $8 trillion (as measured in 2019 dollars) less in economic activity than the CBO projected just five months ago.  Combined with SSTI’s recent examination of economic recovery that found it took 20 states at least four years for their economy to recover back to Great Recession levels, the impact on state budgets can be expected to be long lasting. In fact, a new examination by SSTI finds that through FY 2018, 15 states’ general revenue funds had not recovered to FY 2008 levels (as measured in 2018 dollars) based on data collected by the National Association of State Budget Officers (NASBO). For an additional 16 states, it took seven to 10 years to reach FY 2008 levels.

Every recession is different, as is the path to economic and state budget recovery. Comparing the amount of time it took for states’ general revenue funds to recover after the 2001 and 2008 recessions finds only nine states with consistent recovery periods. Connecticut, Indiana and North Dakota recovered to pre-recession levels in three years or less after both recessions. In Kansas, Maryland, New York, Texas, Vermont and Washington, it took four to six years to recover to pre-recession levels after both recessions; it’s important to note that in the case of Kansas the recovery lasted only two fiscal years (FY 2012 and FY 2013) and general revenue funds fell below FY 2008 for fiscal years 2014 to 2017 likely due to tax cuts proposed by Gov. Sam Brownback and passed by the Kansas Legislature.

Five states (Colorado, Illinois, Michigan, Missouri and Oregon) experienced a faster general revenue fund recovery after the Great Recession than after 2001, but all five started at a lower recovery point in FY 2008 than in FY 2001. They were the only five states in FY 2008 whose general revenue fund was still lower than their FY 2001 level.

State budget recovery is not just a function of economic recovery but also a function of political action and priorities as well. An emphasis on tax cuts or a decision to restrict the size of state government can also impact state general revenue fund totals. As of FY 2018, five states still had general revenue funds less than their FY 2001 totals (Alaska, Michigan, Missouri, Oklahoma and Wisconsin). In all five states, the states’ economies as measured by GDP was 10 to 50 percent higher in 2018 than in 2001.

The widespread recovery from the 2001 recession can be seen in this map.

On the other hand, the length of recovery after the Great Recession is illustrated in this map.

Individual state experiences can be seen in these charts.

Data comes from Table 3 of NASBO’s Fiscal Survey of the States, which we then converted to 2018 dollars. To label a state as recovered, its real general revenue fund level had to exceed the benchmark year (i.e., FY 2001 or FY 2008) for at least two consecutive years.

The accompanying Excel table provides historical trends on general revenue funds and can be downloaded HERE. However, past is not always prologue and the long recovery periods are not written in stone if state legislatures and governors act to review their tax structures and ensure there are adequate resources to invest in the future.

NASBO_State_Revenues.xlsx