Growing U.S. State Budgets Still Weighed Down by Recession

  • Increases lower than in 2015 and 2008 inflation-adjusted peaks
  • Energy-producing states continue to see budget challenges

A sluggish U.S. recovery has meant modest budget growth for states, with spending and revenue still not back to prerecession peaks adjusted for inflation.

Budgets in fiscal 2016 are growing for a sixth-straight year following the worst recession since the Great Depression, which ended in June 2009, according to a biannual survey by the National Association of State Budget Officers released Tuesday.

Yet expected growth is less than last year. Most states are anticipating moderate increases in tax revenue and expenditures this year, which they will allocate toward higher costs for education, Medicaid and other needs. Declining oil prices continue to hammer energy-producing states, the report said.

“We have not seen any year marked by really robust growth,” Kathryn Vesey White, a senior policy analyst at the association, said on a conference call with reporters. “It’s still proving difficult for states to catch up.”

The survey of budget officers from all 50 states showed that 43 enacted general-fund spending increases for the current fiscal year, which expires June 30 for most states. The $790.3 billion represents an increase of 4.1 percent over fiscal 2015.

Spending levels in eight states still haven’t recovered to prerecession levels, even without accounting for inflation, the group said.

State budgets for the current year call for a 2.5 percent increase in income taxes and other revenue, down from 4.8 percent last year. The main culprits were weaker stock-market performance and the decline in energy prices.

Revenue in 2015 was still 2 percent lower than it was in 2008 adjusted for inflation, the report said. It’s too early to say whether projected 2016 totals will reach that threshold, White said.

Illinois and Pennsylvania have yet to enact 2016 budgets, so the report used totals proposed by their governors, White said.

Twenty-two states enacted net tax and fee increases for transportation and other spending in 2016, compared with 18 where net tax decreased, according to the report. The net increase across all states was $545 million.

For the first time since the recession, Fitch Ratings has a stable credit outlook for all states, and the outlook from Moody’s Investors Services also is stable.

Fitch said in a Dec. 1 report that state revenue growth has matched the slow pace of economic recovery, with 15 yet to recover all of the jobs lost in the Great Recession.

Moody’s expects state revenue to increase 4 percent to 5 percent in 2016, slightly lower than last year, according to a Dec. 4 report.

“Even with slower revenue growth and headwinds from rising spending costs, we expect most states will successfully keep their financial positions in balance with prudent budgeting,” Kenneth Kurtz, a Moody’s senior vice president, said in a release.

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