Sept. 16, 2011
Not Out of the Woods
Despite positive fiscal news from the states, considerable challenges remain.
DENVER- Over the past four years, state legislators have faced, and largely addressed, budget gaps totaling $510.5 billion. The latest “State Budget Update” report by the National Conference of State Legislatures shows that while state budgets are recovering, they have not fully recovered from the effects of the Great Recession.
NCSL’s “State Budget Update: Summer 2011” shows collections are stabilizing or growing in nearly every state, although some states are projecting it could take years for revenues to reach pre-recession levels. The return to positive revenue growth that began in fiscal year (FY) 2011 is expected to continue into FY 2012, albeit at a much lower rate.
Year-end balances—an important measure of state fiscal health—also are stabilizing and even rising from their trough in FY 2009. Balances are expected to hold steady in the 5 percent to 6 percent range for the next couple of years, which is a hopeful sign for lawmakers as they try to retain adequate budget reserves for the unexpected.
Despite the modest improvement in state finances, considerable challenges remain. Revenue growth is not expected to keep pace with anticipated increases in program expenditures. Potential federal policy changes and widespread concerns about the strength of economic recovery, present uncertainties as well.
“States are reporting more optimistic and positive news, but they are not out of the woods yet,” said William Pound, executive director of NCSL. “Several issues, such as the president’s jobs bill, federal deficit reduction and the national economic recovery, could affect the growth states have experienced. It is something NCSL continues to watch closely.”
Before enacting fiscal year FY 2012 budgets, 38 states and Puerto Rico faced a collective budget gap of at least $91 billion. The most significant change for FY 2012 budgets was the absence of federal ARRA funds. Lawmakers had to develop general fund budgets based primarily on own-source revenues, unlike the past three fiscal years when federal stimulus funds helped support various state program expenditures.
“In the past, federal stimulus funds provided support to various state programs and expenditures,” said Arturo Pérez, fiscal director for NCSL. “Yet most states anticipate increased revenue in FY 2012 compared with FY 2011, even without ARRA funds.”
Although some states are forecasting budget gaps in FY 2013 and FY 2014, the number of states and size of the gaps are declining. Twenty states originally projected an estimated $31.9 billion in budget gaps for FY 2013. Currently, nine states project budget gaps in FY 2014 totaling $12.2 billion. Compared with previous gaps, these projected shortfalls are significantly smaller. Much uncertainty continues to surround the trajectory of economic recovery, however, which threatens spending and revenue assumptions underlying these gap estimates.
NCSL’s new report, “State Budget Update: Summer 2011,” provides information on budgets in 49 states and Puerto Rico. It is based on data collected from legislative fiscal office directors in the summer of 2011. It includes extensive information on:
- Estimated state year-end balances
- Revenue and spending changes
- Projected budget gaps
This NCSL budget report continues NCSL's long tradition of providing accurate, comprehensive and nonpartisan data on state finances.
Credentialed members of the media may receive a free full copy of NCSL's "State Budget Update: Summer 2011." The link to the report provided in this release does not contain links to the detailed 50-state tables. Please contact the press room to obtain a complete copy of NCSL's budget report.
The National Conference of State Legislatures has also released its 2011 “State Tax Update” report. The new report summarizes the changes in tax policy that took place during 2011 legislative sessions that will affect revenue collections in FY 2012.
NCSL is a bipartisan organization that serves the legislators and staffs of the states, commonwealths and territories. It provides research, technical assistance and opportunities for policymakers to exchange ideas on the most pressing state issues and is an effective and respected advocate for the interests of the states in the American federal system.