NASBO reports revenue in 19 states ahead of 2019 forecast

WASHINGTON – States expect their revenue to grow an average of only 2.1% in fiscal 2019, but 19 already are running ahead of projections, the National Association of Budget Officers reported Thursday.

Budget officers in another 14 states have reported early fiscal 2019 revenues running within a half percentage of projections with only five telling NASBO they were collecting less than projected.

Taken as a whole, the numbers bode well for both state and local issuers, said Matt Fabian, a partner at Municipal Market Analytics. Fabian told The Bond Buyer that most states are showing improved budget sustainability.

“Incrementally better revenues means less pressure on state budgets and less likelihood of states resorting to gimmicks and one time solutions that can amplify credit deterioration down the road,” Fabian said.

It also means states are less likely to cut aid to local governments, he added.

John Hicks, NASBO’s executive director, described the growth of state revenues “as more reflective of the economic base than the last several years” when national economic growth was not fully reflected in state revenues.

“Now it appears that we have more of an alignment with a growing economy and growing state revenues,” Hicks said.

Hick, John Hicks NASBO

Fiscal 2018 revenue growth among the states was a healthy 6.4%, led by a 7.9% surge in personal income taxes and job growth.

This is the second consecutive year that states are reporting revenues running ahead of projections.

NASBO’s midyear survey of the states estimated that state revenues would grow at an average of 4.9% in fiscal 2018 as many states were approaching the June 30 end of their fiscal year, with larger states showing the biggest gains.

Forty-six states began their 2019 fiscal year on July 1, with the exception of only New York, which starts April 1; Texas, which begins Sept. 1; and Alabama and Michigan, which start Oct. 1.

The fiscal 2018 surge in income tax revenue was mostly associated with nonwage income such as estimated payments and higher capital gains reporting, according to NASBO.

“Fiscal 2019 is expected to mark the ninth consecutive year of moderate state spending and revenue growth, according to states’ enacted budgets,” NASBO said in its Fiscal Survey of the States.

Many states ended fiscal 2018 with higher than projected balanced in their general funds and rainy day reserves. Total rainy day funding reached a record $90.5 billion with the median balance in state rainy day funds at 6.4%.

States have budgeted for increasing their rainy day funds in 2019 to a median balance of 7.3% reflecting continued improvement from a low point of 1.6% in 2010.

On the spending side, states have budgeted a 4.3% increase in general fund spending which is slightly higher than the previous three years but still below the 39-year average of 5.4%.

Twenty states have budgeted spending increases of 4% or higher, while six states haven’t budgeted for any increase.

Overall states enacted $41.1 billion in increases, up from $12.7 billion in fiscal 2018.

The largest 2019 increase of $16.3 billion came in a catch-all category listed as “all other.”

The biggest increase in an individual category was K through 12 education at $10.9 billion followed by Medicaid at $8.4 billion.

Higher education received a $3 billion increase while corrections rose $1.6 billion and transportation increased only by $600 million and public assistance was budget for an additional $400 million.

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