Although state budgets are flush, labor shortages worry NCSL

States are in the best fiscal condition in decades, but continued labor shortages remain a concern, according to the National Conference of State Legislators.

"There was a lot of discussion in the campaign about the health of state budgets," said NCSL CEO Tim Storey. "This is the strongest we've seen state budgets in decades," with rainy day funds "at historic levels" as revenues outpace expectations.

But the lingering effects of the labor shortage concern state legislators. Legislators continue to hear that despite historically low unemployment, firms "cannot find qualified staff," Storey said. "Where have the people gone? Labor employment workforce issues underwrite everything."  

Although the need for future debt financing appears uncertain, states must prepare for unforeseen threats. "National disaster last year caused almost $300 billion in damage," said Storey. "It's creating upheaval in insurance markets, as well as a fiscal strain and not all of it is federal money." 

Ellen Jaskol/(Photo by Ellen Jaskol)

While the midterm election failed to produce an expected red wave, it did bring in many new legislators. "It was a low-change election in state political makeup but there's still 1,500 new legislators coming in which means a lot of education about how state budgets work," Storey said.

Storey's observations came during a recent webinar. A report accompanying the presentation drilled down into the current abundance of cash and possible future openings for debt financing, including on highways, where electric vehicles will change the narrative. 

Per the report, "the motor fuel tax makes up the largest share of state transportation revenue,38.4% in 2022 down from 41.1% in 2018, according to the National Association of State Budget Officers. Forecasts indicate states will lose even more gas tax revenue as vehicles become more fuel-efficient, with states predicted to lose as much as $87 billion in revenue by 2050." 

In response , Oregon, Utah, and Virginia lawmakers all created voluntary road usage charges, or RUC programs, an alternative to the gas tax, that charges drivers based on their miles traveled.

The effects of the Infrastructure Investment and Jobs Act are also starting roll through states' energy policies as efforts to boost hydrogen and nuclear fuel sources receive heightened interest.

Per the report, "Illinois (SB 2613) and Washington (SB 5910) enacted legislation to establish hydrogen hubs, and Arizona (SB 1396) and Nebraska (LB 1099) created hydrogen energy study committees. With numerous provisions in both new federal laws encouraging the development of nuclear energy, legislatures are likely to support existing and advanced reactors." 

Water management is another hot-button issue, with the EPA estimating it will take more than $472 billion over 20 years to improve and maintain the nation's drinking water infrastructure. The report notes, "the STORM fund lets states prioritize projects for municipalities and support large projects to improve infrastructure resilience. The loan repayments will replenish the fund, allowing for ongoing investments." 

Storey looks to the states for fresh leadership. "The federal government is not likely to be pioneering policymaking to solve problems over the next two years given the political dynamics of Washington, but it is going to happen in states," he said. "State legislators are where the action is. Governors, we like to pretend they don't exist, but they are important parties to this as well."