Revenues Recover but States Still Tight-Fisted

June 22, 2012

Despite persistent unemployment, a stalling recovery and turmoil in Europe, state government revenues have surged in recent months and are expected to continue to do so for fiscal year 2013 (which starts on July 1).  However, states remain tight-fisted as they continue to implement spending cuts due to uncertainty regarding future output, says the Chicago Tribune.

Especially because almost all states must maintain balanced budgets each fiscal year (the lone exception is Vermont), governors must be cautious.

  • For the upcoming 2013 fiscal year, total U.S. state revenues will increase by $27.4 billion, or 4.1 percent, to reach $690.3 billion.
  • General fund spending, however, will rise by only $14.6 billion, or 2.2 percent.
  • Tax collections, the largest source of revenue, will likely rise 4.8 percent to $556.6 billion.
  • Altogether, 39 states are pushing up spending in fiscal 2013, although 25 will likely spend less than before the recession.
  • Total state spending will be 0.7 percent below the $687.3 billion of expenditures in fiscal 2008 -- the last fiscal year before revenues were affected by the housing downturn and financial crisis.

One of the primary drivers for continued state cuts has to do with their relationship with the federal government.  By cutting support for states and state-run programs, the federal government is implicitly placing an additional budgetary burden upon state governments that they will have to cover.

  • Congress has scheduled cuts of up to $1.2 trillion affecting states as part of last summer's deficit deal.
  • Also, federal lawmakers often find savings by cutting grants sent to states, says Dan Crippen, executive director of the National Governors Association.
  • Furthermore, as part of the 2009 economic stimulus plan, the federal government pitched in extra funding for Medicaid, which the states operate with partial reimbursements from the federal government.
  • This increased support, however, is now being drained away.
  • State spending on Medicaid rose 20.4 percent in fiscal 2012, and federal spending dropped 8.2 percent.

As the federal government slowly eases away support for states, the 50 governors and legislatures will have to cover the difference.

Source: Lisa Lambert, "Revenues Recover but States Still Tight-Fisted," Chicago Tribune, June 11, 2012.

For text:

http://www.chicagotribune.com/news/sns-rt-us-tuesday-usa-states-budgetsbre85b05h-20120611,0,7460644.story

 

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