States registered another year of healthy revenue growth in FY 2019

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State tax revenues posted a second consecutive year of healthy growth in fiscal 2019, climbing by 4.2% on top of a 6.9% increase the prior year.

Meanwhile, total state spending increased 5.7% in fiscal 2019 supplied by a 4.7% increase in federal funding that was augmented by a 5.9% increase the use of state funds.

The federal funding increase in fiscal 2019 represented an increase from the 3.5% increase in fiscal 2018 and 2.5% hike in fiscal 2017.

The 5.9% rise in the use of state funds was the highest rate since the last recession, according to the National Association of State Budget Officers.

“States are in better positions than they have been at any time since the end of the Great Recession,” said NASBO Executive Director John Hicks.

The overall increase in state spending was only one tenth of a percentage point above the 33-year historical average of the NASBO survey.

Marcia Van Wagner, vice president and senior credit officer at Moody's Investors Service, said the NASBO report shows state governments in “pretty good” financial shape.

“As everyone knows, it has been a long and difficult recovery from the Great Recession for a lot of states,” Van Wagner said. “What we’re looking at in the last couple of years is more of a return to more historically comparable rates of growth and consequently states are playing some catch up in areas they had to cut back on.”

However, Van Wagner said the report highlights “the unevenness of growth and the growth in spending” among the states, noting that the Western states have grown faster than the Midwest and parts of the Southeast.

Eighteen states registered an increase of at least 10% on transportation spending from state funds. The median increase in transportation spending was 4.2%.

“We certainly had pockets of big increases but we’re certainly beginning to see sustained increases in transportation funding,” Hicks said. A significant number of states have increased their gasoline taxes and that additional revenue is boosting transportation spending.

Several states had significant jumps in transportation spending, led by Kansas, which jumped by 70%.

In addition, Idaho rose 57%, Rhode Island increased 42%, California and Nevada each increased 39%, Florida increased 32% and New Jersey rose 26%.

Year-to-year transportation spending by individual states can fluctuate significantly because some years reflect the start of major projects while the previous year may have been a lull.

A more representative way to look at transportation spending would be to use a three or four year moving average, but that calculation was not a part of the report.

The states’ share of Medicaid spending for health services for the poor rose 3.9% while federal spending on Medicaid rose 5.3%.

Total Medicaid spending of $613.1 billion for fiscal 2019 states reflected an increase of $27.8 billion over the $585.3 billion spent in fiscal 2018, an overall 4.8% increase.

Hicks said the annual rate of increase for Medicaid has eased because enrollment is flat or declining. The jobless rate remains at a 50-year low and Medicaid health services for the poor is a counter cyclical program in which the rolls grow during periods of high unemployment.

Elementary and secondary education total expenditures increased by 4.7% in fiscal 2019 after increasing 3.7% in fiscal 2018.

State funds for K-12 increased 4.7% in fiscal 2019 and 4.1% in fiscal 2018, while federal funds grew 6.1% in fiscal 2019 and increased 0.2% in fiscal 2018.

“Federal fund spending growth for K-12 education in fiscal 2019 is higher than in recent years, which is likely due to the effects of the last two-year federal budget agreement,” the report said.

Total expenditures for higher education increased by 3.5%, up from a 2.6% increase in fiscal 2018.

State funding for higher education increased 3.3% after increasing 3% in fiscal 2018.

Federal funding for higher education rose 3.2% after increasing by 3% in fiscal 2018.

Support for higher education has increased at an average annual rate of 3.5% from 2013 through 2019 following significant reductions during fiscal 2009 through 2012.

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