By Emily Maher
The United States is on track for its longest economic expansion in history, spanning 122 months if growth continues through August 2019.
This follows the Great Recession of 2007-2009, one of the sharpest economic declines in our history. While it appears we’ve risen from the rubble, with a stronger more agile economy, marked with low unemployment rates and robust state tax revenues, a closer look shows many states are still feeling the pinch.
State revenues took a big hit during the recession, losing out on at least $283 billion in tax collections between FY 2009 and FY 2012. Funding for core public programs was cut in almost all states and in many cases, spending is still below pre-recession levels despite 10 years of economic growth.
A recent report from The Pew Charitable Trusts examines state revenues since the recession and the lingering effects of what might be called a “lost decade” for state finances, which continues to plague states. Barb Rosewicz, project director in Pew’s State Fiscal Health Program, shared the findings of the report at the recent Fiscal Directors Pre-Conference to the NCSL Legislative Summit.
Report findings include:
- Nearly half of states are still spending less than pre-recession levels.
- State higher education funding per student remains 13 percent lower than 2008 levels nationwide and is down in 40 states. The decline in appropriations to public colleges and universities caused tuitions to increase, shifting the burden to students.
- State funding for K-12 schools was lower per pupil in 29 states in 2016 than it was in 2008.
- State infrastructure investment has declined significantly since its peak in the late 1960’s, but the recession plunged it to its lowest level as a share of economy in more than fifty years.
- At the end of FY 2016, state aid to localities was down 0.8 percent from pre-recession levels. More than half of the states appropriated less aid to localities. As a result, local governments feel greater financial vulnerability.
- Faced with big budget gaps, to quickly shed spending state governments shrunk their workforces by 170,000 jobs. In 2018, state governments still had 132,300 fewer employees than at the peak in 2008.
- State Medicaid spending spiked after the recession as a result of bigger caseloads. As the economy slowly recovered, Medicaid continued to consume a greater share of state budgets—even while the federal government covered the extra costs for states that expanded Medicaid eligibility to include a larger population.
- States are still rebuilding their core fiscal reserves. More than a third of states have smaller rainy day funds than in FY 2007. However, FY 2018 marked a record-high amount of savings.
- During the recession, returns on public pension plans’ investments fell significantly and the gap between obligations and assets grew. In 2017, the debt of unfunded pension liabilities reached $1.28 trillion, an increase from $362 million a decade earlier.
The report concludes that even though states have recovered from the crisis of the recession, they are still feeling budget pressures that could affect how well they are able to weather another economic downturn. In many states, finances remain in the shadow of the lost decade.
You can read the full report by The Pew Charitable Trusts here.
Emily Maher is a Policy Associate in NCSL’s Denver office.