The median level of state reserves declined by 21.5% in fiscal year 2014 and is expected to decline further this fiscal year, according to the Pew Charitable Trusts.
In a web-based report released Thursday, Pew analysts Alex Boucher and Barb Rosewicz said that the median level fell to 24 days in fiscal 2014 from 33.1 days in fiscal 2013.
"The drop in reserve levels coincided with a fall in state tax collections, as high-income earners reacted to new federal tax rates," they wrote. "A number of states made up for lower tax receipts in 2014 by spending more from their end-of-year balances, resulting in a drop in reserves."
Thirty-seven of the 50 states reported declines in their reserves, the analysts said.
Going further, the analysts reported that projections show that reserves will decline to 22.3 days at the end of this fiscal year. These projections are based on state budgets.
The states with the smallest reserves at the end of fiscal 2014 were Arkansas (0) days, Illinois (0.9 days), Pennsylvania (1 day), and New Jersey (3.3 days).
The reserves looked at include rainy day funds and end-of-year balances in General Funds.
Boucher and Rosewicz note that the reserves they looked at did not include money states have outside General Funds that can sometimes be used as fiscal cushions.
The analysts drew their data from Fiscal Survey of the States, which is prepared by the National Governors Association and the National Association of State Budget Officers.
Fitch Ratings States Group Head Laura Porter said she was not surprised by the fall in reserves in fiscal year 2014.
Because of changes to federal tax laws in 2013, many people moved discretionary income into 2012. This led to increased tax revenues for states in fiscal year 2013 but led to decreased revenues in fiscal 2014, she said.
Porter said it was unclear what will happen with reserves in fiscal 2015, the current fiscal year. In December Fitch released its annual view on the coming year for the states, indicating it had a stable outlook on the states' credit.
