States should improve their budget balances relative to annual expenditures, according to the National Governors Association and National Association of Budget Officers.
“An informal rule-of-thumb used to be that balances should be built to a level that equals at least 5% of general fund expenditures to provide a relatively adequate fiscal cushion,” according to a report, The Fiscal Survey of States, released this spring from the NGA and NASBO.
Some organizations and academics have called for greater than 5% levels.
On the surface, the states seem to have achieved at least the 5% level — the overall balance level was 6.5% at the close of fiscal 2012 last month. It is expected to increase to 7.8% by the end of the current fiscal year.
Balances usually include rainy-day funds and other accounts to hold sums not actively employed.
However, Alaska and Texas account for a large chunk of the balances and slightly over half of the state balances for the end of this fiscal year, according to the report.
If these two states are excluded from the calculations, states had a 3.8% balance level at the end of the past fiscal year and are expected to have a roughly 4.1% balance level at the end of the current fiscal year.
The fiscal year 2013 balances of California, Florida, Illinois, New Jersey, New York and Pennsylvania are expected to amount to $6 billion. That’s a substantial decline from fiscal 2006 when they totaled $24 billion.
In the current fiscal year four states are expected to end with balances under 1% of expenditures: New Jersey (0.9%), Connecticut (0.3%), Pennsylvania (0.1%) and Arkansas (0.0%), according to the Fiscal Survey of States. Puerto Rico is also expected to end with a 0.0% balance.
“Maybe reserve funds are not all they are made out to be,” said Richard Weiss, director of the Arkansas Department of Finance and Administration, when asked about the state’s supposedly nonexistent reserve fund. “The states that have reserve funds go merrily along and then have to use their reserves when they get into trouble,”
Arkansas has very stringent laws against deficit spending, he said.
The Arkansas government has $190 million of extra revenue from the last fiscal year, Weiss said. In addition the governor has a $40 million fund to deal with shortages. The $230 million is 1.3% of the state’s $18 billion budget.
Moody’s Investors Service rates Arkansas Aa1 and Standard & Poor’s rates it AA. .
The report’s figures for end-of-fiscal-year 2013 balances are based on projections from governors budgets presented in the winter of 2011-2012. Since then Pennsylvania has had improved revenue projections, but the legislature has also chosen to increase expenditures over the governor’s recommendation, said Eric Shirk, spokesman for the Pennsylvania governor’s office. So the end of fiscal year 2013 reserve level is now projected to be lower than the report expected, Shirk said.
New Jersey and Connecticut did not respond to calls by press time.