State Budget Update: March 2011

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State Budget Update:  March 2011Introduction

Nearly two years into the U.S. economic recovery, following the end of the Great Recession, state finances are showing encouraging signs of revenue stability. At the same time, budget gaps remain a daunting obstacle for some states. Much of the difficulty is explained by the significant drop in state revenue collections in the previous two fiscal years. The steady, but slow pace of revenue growth since, has not been sufficiently robust to offset the loss of American Recovery and Reinvestment Act (ARRA) funds or the increases in caseloads and related costs in program areas such as Medicaid and K-12 education.

State revenues continue to stabilize or grow, which is a welcome improvement after some of the most challenging budget years ever faced by states. The majority of major tax categories are now performing at or above estimates through the first seven months of fiscal year (FY) 2011. In particular, state personal income and general sales taxes, which account for two-thirds of state general fund revenues, are showing positive performance when compared to their latest estimates.

State officials expressed more confidence about the current fiscal situation than in recent years, possibly indicating that the most difficult times are behind them. A growing number of states report that their fiscal situations are stable or improving as revenue performance continues to meet or exceed projections. However, overall fiscal conditions remain weak and budget gaps continue to present challenges. The information in this report illustrates the budget paradox faced by many states: stronger revenues but persistent budget shortfalls.

A longer term view of state finances shows reasons for concern, especially when analyzing projected return-to-peak revenue collections. Only two states expect their collections to return to peak levels this fiscal year. Another nine states expect a rebound in FY 2012.  But nearly half do not expect to see peak levels until sometime between FY 2013 and FY 2016.  

This report includes information on:

  • FY 2011 budget gaps
  • Revenue performance for major tax categories (through February for most states)
  • Spending overruns in FY 2011
  • Summary of the current state fiscal situation
  • Projected budget gaps in FY 2012 and FY 2013
  • Projected return to peak revenue collections
This report provides information on all 50 states and Puerto Rico. It is based on data collected from legislative fiscal directors in March 2011.