Total spending by U.S. states fell 1.7% in Fiscal Year 2012, the National Association of State Budget Officers said in its annual “State Expenditure Report,” the first decline in the history of the 26-year-old survey’s history.
NASBO says the drop in FY12 was caused by state revenues not increasing as fast as the federal Recovery Act funds declined. However, the group estimates that expenditures are returning to more typical levels for Fiscal Year 2013, with both state and federal funds rising modestly. The report includes data from actual FY11 and FY12 along with estimated FY13 data.
“By some measures, state budgets experienced positive growth in FY12,” the report says. “General fund spending increased 3.7% while spending from state funds (general funds and other state funds combined) rose 2.2%.”
Federal funds to states dropped 9.1% as most spending from the stimulus ended. NASBO says state general fund revenues increased $23.3 billion in FY12 while the stimulus funds decreased $63.4 billion.
But things are looking a bit brighter for FY13.
State and federal funds are estimated to have grown by 5.4% and 2.3%, respectively in FY13, resulting in a 4.7% increase in total state expenditures, NASBO said. The group also estimates that in FY13 state general fund revenues increased 5.4%, with sales, personal income, corporate income, gaming, and other taxes and fees all experiencing gains.
Medicaid is the largest category of total state spending, NASBO says. In Fiscal Years 2011 and 2012, Medicaid represented 23.9% of total state expenditures, the report says, adding that is estimated to represent 24.5% for FY13.
K-12 education is the largest funding component from states’ own sources, NASBO says. Elementary and secondary education has risen from 20.4% of total state expenditures in FY11 to 20.1% in FY12 and to an estimated 20.0% in FY13.
“While Medicaid continues to represent the greatest share of total state expenditures, elementary and secondary education remains by far the largest category of spending from state funds (general funds and other state funds combined, excluding bonds),” the report says. “In FY13 it is estimated that K-12 will represent 24.8% of state funds, with Medicaid the next largest category at 15.9%.”
Looking ahead, NASBO says state will remain cautious as the gauge the pace of economic recovery in the United States.
“States remain concerned about both the short- and long-term outlook due to the slow pace of economic growth, uncertainty surrounding federal fund levels, questions regarding the future performance of state revenue, and increased spending demands,” the report says. “However, states are also hopeful that spending and revenue will continue to grow moderately along with the national economy and the budget volatility of recent years will subside.”
