WASHINGTON — State budgets still face considerable challenges, including the need to tackle pension problems, while they have yet to experience a robust recovery three years after the recession officially ended, according to a new report by the National Conference of State Legislatures.
The 39-page report, “State Budget Update: Summer 2012,” was released Tuesday. It provides an overview of the current status of budgets in all 50 states and the District of Columbia.
An air of uncertainty hangs over many economic outlooks for states’ new fiscal years, most of which began on July 1.
“State budgets remain vulnerable to economic shocks, domestically or from international developments such as the European debt crisis,” the report said. “Unemployment rates remain high in many states. Already apprehensive about funding Medicaid, policymakers are concerned about implementing the federal Affordable Health Care Act.”
In a survey, legislative fiscal directors identified at least 53 different challenges that would affect their fiscal 2013 budget outlook, with 22 states citing Medicaid as the top concern.
Pensions are a top issue for eight states influencing their budget outlook: Montana, Alaska, Illinois, Kentucky, Pennsylvania, Vermont, Hawaii and Missouri.
Eight states indicated that slow revenue performance would be a significant challenge affecting their budget outlooks, primarily because of possible outside risks affecting projections or slowing growth rates.
Officials in 10 states said federal deficit reduction and cuts to military spending is an expected challenge.
There is some good news. Year-end balances are rising as more states are shoring up their rainy-day funds. Fiscal 2013 general fund revenues are projected to rise 3.7% from fiscal 2012, the report said.
Revenue performance is improving and beginning to return to pre-recession levels. Additionally, budget gaps are rare and confined to a few states. States are projected to hold year-end balances at or above 5% for fiscal 2012 and 2013 — the level rating agencies typically recommend.
The aggregate year-end balance, which combines general fund close balances with rainy-day funds, is estimated to rise 17.8% to $54.8 billion, from $46.5 billion in fiscal 2012, It was $40.9 billion in fiscal 2011.
Ten states and the District of Columbia expect to finish fiscal 2012 with year-end balances of 10% or more. The three states with the strongest natural resource bases — Alaska, Wyoming and North Dakota — all boasted the largest balances as percentages of general fund expenditures. Alaska had a 214.3% spike, while Wyoming saw a 146.3% jump and North Dakota had a 48% increase.
Thirty states expect their balances to decline in fiscal 2012 from fiscal 2011. In 10 states the drop is less than 1% but in six others the drop is greater than 5%.
The most significant factor affecting state finances is the national economy, the report said. “The lowest levels reported in state balances during the last 30 years coincided with national economic downturns,” it said. For example, in the early 1980s, state balances fell to 1.5% and they fell even further to 0.7% during the early 1990s recession.
However, year-end balances throughout the most recent recession have been more difficult to evaluate due to the impact of the American Recovery and Reinvestment Act of 2009 on state finances. Balances fell to 4.8% in fiscal 2009 but most likely would have fallen further without the funds, the report said. The stimulus boosted year-end funds to 5.6% in fiscal 2010, to 6.3% in fiscal 2011, 7% in fiscal 2012, and are projected to rise to 8% at the end of fiscal 2013.