Report: State Expenditures Now Growing at Greatest Clip Since Before the Recession

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A new report estimates state expenditures will grow to $883 billion and rainy day funds will reach $68.2 billion in fiscal 2019.

States showed increasing signs of fiscal stability in 2019, with estimated general fund expenditures rising at their fastest rate since before the Great Recession, according to a report released Thursday by the National Association of State Budget Directors (NASBO).

States are also increasingly socking away revenue in rainy day funds, with 37 states growing fund balances in fiscal 2019 (which ends this month in almost all states) and 32 governors projecting increases in fiscal 2020 through their recommended budgets, said John Hicks, NASBO’s executive director.

“Overall, governors are calling for moderate spending increases in investments and key priorities for fiscal 2020 while also planning for further increases to their rainy-day fund balances,” Hicks said on a call with reporters.

Taken altogether, NASBO’s survey offers a positive assessment of gains states have made since the Great Recession, but cautions that progress has not been felt evenly across all 50 states.  

“Growth since the Great Recession has been uneven across the states,” the report said. “In fiscal 2019, 25 states still spent less from their general funds than they did in fiscal 2008 in inflation-adjusted terms, with nine of those states spending 10 percent or more below their pre-recession levels, including a number of energy-dependent states.”

Recently released research by The Pew Charitable Trusts found state spending in areas like public education and infrastructure is still behind compared to where it stood before the recession took its toll.

According to the NASBO report, states spent $883 billion from general funds in fiscal 2019, an estimated 5.8 percent increase from 2018. That marks the greatest single-year increase since fiscal 2007, when spending jumped 9.4 percent.

Rainy day funds, which dipped to $27 billion in 2010, are expected to hit $68.2 billion in 2019 and $74.7 billion in 2020.

The report further underscores states’ positive fiscal health, noting no states cut their budgets mid-year due to revenue shortfalls in this budget cycle. Three states reported mid-year budget reductions, but the report said those were made for other reasons, such as to offset resources available from another funding source. By comparison, 22 states made mid-year spending cuts in 2017, which totaled $3.5 billion.

States projected they would collect a combined total of $877.8 billion in fiscal 2019, an amount the report indicates is likely to edge higher because calculations were done before April tax collections.

Looking forward to fiscal 2020, governors’ spending plans will increase state budgets by nearly 4 percent to $916 billion, with 47 states increasing expenditures and the majority of new funds directed toward education, the report states.

Fiscal 2020 spending plans in 21 states include tax or fee increases totaling $8.9 billion. The report flags several significant tax changes: personal and corporate income tax conformity changes in California, Minnesota, and Virginia; expansion of the sales tax base and increased health provider taxes in Connecticut; a new millionaire’s tax on high-income earners in New Jersey; extension of higher personal income tax rates in New York; motor fuel tax hikes in Alabama, Arkansas, Michigan, Ohio and Wisconsin; a business and occupations tax in Washington; and miscellaneous tax changes in Illinois.

Despite some recent revenue increases, the report said state officials have been reticent to dedicate those funds to long-term projects, believing some of the gains are temporary. Instead, officials “are choosing to direct some new money in fiscal 2020 budgets towards one-time expenditures including paying down debt and making extra pension fund contributions.”

Andrea Noble is a staff correspondent with Route Fifty.

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