PHOENIX - State budget conditions vary widely as of late fiscal 2016, with the overall picture getting better while states with less diversified economies face significant stress, Standard & Poor's said Wednesday.
The rating agency's fiscal 2016 state budget survey confirmed that several of the states with a disproportionate reliance on oil production for their revenues, including Alaska, Louisiana, Oklahoma, and North Dakota, are facing "pronounced budgetary stress." Low oil prices have badly constrained revenues, leaving state legislatures and governors scrambling to come up with solutions amid negative credit watches and downgrades.
S&P said that the budgetary process would loom large for several states, including some of the oil states and Illinois, which is in the unprecedented tenth month of a fiscal year without having passed a budget.
But overall, the rating agency found that things were looking up for more states than not.
"Compared with our April 2015 survey of state budget conditions, the number of states with current and projected operating gaps has declined," S&P said. "As of April 2016, we view 22 states as on track to post an operating shortfall for fiscal 2015-2016, down from the 27 states at roughly the same time last year based on their budgetary baselines. Looking ahead to fiscal 2016-2017 (which begins on July 1 for 46 of the states) the number of states projecting budget shortfalls ticks down again, to 17."
Western and South Atlantic states other than oil producers generally experienced stronger economic growth, the report found, with states such as California, Georgia, Hawaii, Maryland, Oregon, and Washington experiencing stronger revenue collections than anticipated, giving them higher-than-anticipated ending balances.
Returning to a note it has struck in previous reports, S&P said it more positively views those states that have taken advantage of an expanding economy to shore up their budget reserves. Long-term economic growth could be constrained, the agency said, by demographic shifts inherent in the aging U.S. population as the Baby Boomers continue to reach retirement age.