State Budget & Tax Actions: Preliminary Report | August 2013

image of U.S. and moneyIntroduction

State fiscal conditions continued to improve in fiscal year (FY) 2013. General fund revenue growth was notably strong and outpaced projections in most states. At the same time, expenditures were generally on target. The combination of these factors enabled many states to shore up reserves and support supplemental expenditures. Overall, the fiscal situation was solid in almost every state in FY 2013.

In addition to revenue growth, one of the more notable developments in 2013 was the number of states that considered tax reform, as substantial changes in income taxes, sales taxes and transportation funding mechanisms dominated 2013 state tax discussions.

Despite the improved fiscal situation, lawmakers remain cautious about the budget outlook for FY 2014. 

Officials are uncertain about the sustainability of the stronger revenue growth rates experienced in FY 2013 and expect revenue collections to slow. Additionally, spending needs are likely to outpace revenue projections as growing Medicaid costs and a protracted economic recovery continue to pressure state budgets. As a result, state year-end balances are projected to fall by the close of FY 2014.