WASHINGTON – Inflation-adjusted state spending and revenue for fiscal 2016 may reach levels not seen since before the Great Recession, according to a study from the National Association of State Budget Officers released Tuesday.
The NASBO Spring Report is one of two reports the group releases annually. It aggregates individual data on states' general fund receipts, expenditures, and balances.
Although the report shows a return to pre-recession levels, it cautions that states still face long-term pressures in areas like health care, education, pensions, and infrastructure that "may require difficult budgetary decisions."
NASBO executive director John Hicks said the six years it has taken states to return to pre-recession levels since the recession's low point in 2010 is "an unusually long time." The return in estimated state revenues is the result of a "slow, but positive trend of annual growth," he said.
States' annual combined general fund spending in 2016 is expected to be $797.7 billion, 1.2% above the previous peak in fiscal year 2008, when general fund spending was $788.5 billion after adjusting for inflation.
The $797.7 billion estimate for 2016 also represents an average growth rate of 5.5% from the $756.1 billion of general fund spending in 2015. The 5.5% rate is the same as the 38-year historical average rate NASBO has seen since it started collecting data for the studies in 1979.
However, this year's growth rate is partially driven by one-time increases and technical adjustments in large states like New York, NASBO said in the report. The median estimated growth rate among states in fiscal year 2016 is 3.8% and 29 states still have lower estimated general fund expenditures in fiscal 2016 compared to their inflation-adjusted fiscal 2008 levels.
General fund expenditures are projected to increase by a more modest 2.5% in fiscal year 2017 to $818 billion.
Average state general fund revenues in fiscal year 2016 and 2017, when adjusted for inflation, are estimated to grow 2.8% and 2.9%, respectively. NASBO's report predicts total state general fund revenues of $810 billion in fiscal year 2017 and $787 billion in 2016. Fiscal year 2008 general fund revenues totaled about $780 billion when adjusted for inflation.
Several states that rely more on the energy sector for revenue generation probably will continue to struggle in 2016, according to NASBO. Alaska and Wyoming are expected to experience a nominal percentage revenue change between fiscal years 2015 and 2016 of -29.4% and -32.8%, respectively.
Additionally, only 27 states as of the 2016 estimates have individually surpassed their fiscal 2008 general fund revenue levels after adjusting for inflation.
NASBO found that states' governors are recommending modest spending increases for core government services in their budgeting for fiscal year 2017. Governors in total recommended $8.9 billion in spending increases for K-12 education and $7.6 billion for Medicaid, the two largest categories of state general fund spending, according to NASBO. State Medicaid is expected to grow 9% in fiscal 2016 compared with 2015, and only 2.1% in fiscal 2017 compared to where NASBO has estimated it will be at the end of 2016.
Governors recommended net spending increases of $1.1 billion for both higher education and corrections, $688 million for public assistance, and $442 million for transportation in fiscal year 2017. The report doesn't address most state transportation funding, because states generally make their transportation expenditures from areas outside of the general fund. A separate NASBO report released earlier this year found that governors have made investment in transportation and infrastructure a priority in 2017.
In addition to the spending and revenue conclusions, the report found that total budget reductions in fiscal year 2016 are expected to remain low and states' "rainy day" funds are expected to grow to $49.3 billion in fiscal year 2016 compared to $45.1 billion in fiscal 2015.
