State Budget Update: Summer 2011

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State Budget Update:  Summer 2011Introduction

NCSL’s latest fiscal survey finds that state budgets are recovering, but are far from being fully recovered from the effects of the Great Recession. The fiscal impact has been deep and prolonged, with fiscal year (FY) 2012 marking the fourth consecutive year that states faced significant mismatches between revenues and spending. To date, state lawmakers have faced—and largely addressed—budget gaps totaling $510.5 billion. And though additional budget gaps loom, the magnitude and number of states projecting them has fallen considerably.

Better revenue performance is driving the turnaround in state finances. Collections are stabilizing or growing in nearly every state. Although it may take years for revenues to reach pre-recession levels, which is what some state officials are predicting, higher collections in the near term are easing some current budget pressures. The return to positive revenue growth that began in 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. It is important to note, however, that the aggregate balance is heavily influenced by the reserves in Alaska and Texas: The national average drops considerably when their year-end-balances are excluded from the tallies.

Despite the modest improvement in state finances, considerable challenges remain. Revenue growth is not expected to keep pace with anticipated increases in Medicaid and other health care costs. Additionally, public education demands and funding for other state programs will continue to present lawmakers with difficult budget choices. Potential federal policy changes also present uncertainties for state budgets. There are also widespread concerns about the strength of economic recovery, which many policymakers describe as fragile. They note that any significant disruptions to the recovery would stall or derail recent state fiscal improvements.

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.