States Plan Slowest Spending Increase Since Recession

U.S. states are set to increase spending at the slowest pace since the recession ended five years ago, reflecting wariness about the recovery.

Governors proposed raising spending by $21.4 billion, or 2.9 percent, to $750.5 billion during the 2015 fiscal year, which begins in July in all but four states, according to a report today by the National Association of State Budget Officers. It would mark the smallest increase since 2010, when they began spending more after two years of cutbacks.

“States are in much better financial shape,” Scott Pattison, executive director of the Washington-based group, said in a statement. “Still, states are cautious, especially since revenues are growing slower than expected in some states.”

Even with many states projecting surpluses, officials were hesitant to cut taxes, hire workers, or restore all cuts made after the 18-month recession ended in 2009. The growth of tax collections slowed this year, following a jump in 2013 after taxpayers sold stocks and collected bonus income early to avoid federal rate increases set to kick in that year.

During the first four months of this year, income-tax collections slipped by 7.1 percent, or $8.4 billion, declining in 38 of the 41 states that impose a broad-based levy on wages, according to a report released today by the Nelson A. Rockefeller Institute of Government in Albany, New York. New Jersey, Connecticut and Virginia are among states that were caught off guard by the magnitude of the drop.

California Surplus

After deep budget cuts stemming from the recession, some states are hesitant to spend surpluses that emerged during the recovery. In California, for example, Governor Jerry Brown, a Democrat, is pressing lawmakers to pay off debt and bolster savings.

The restraint has driven gains in the $3.7 trillion municipal-bond market as officials slow borrowing. This year, as sales slid 23 percent from a year ago, munis gained each month through May for the first time since 1991, according to Bank of America Merrill Lynch indexes.

The survey, based on governors’ budgets introduced this year, found that tax collections are expected to increase by 3.2 percent in the 2015, outstripping spending increases.

Governors proposed cutting taxes and fees $2.5 billion, according to the survey. Most proposals were modest, it said.

About three-quarters of next year’s spending increases were slated for schools and Medicaid, the health-care program for the poor, with jumps of $10.9 billion and $4.9 billion, respectively, according to the survey. There were smaller sums for higher education and transportation.

“Additional spending receives much more scrutiny now than it did before the recession,” Oregon Chief Financial Officer George Naughton said in a statement.

To contact the reporter on this story: William Selway in Washington at wselway@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Justin Blum

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