On December 13, 2016, the National Association of State Budget Officers (NASBO) released their semi-annual report, Fiscal Survey of States, Fall 2016.  The report updates information on the states’ fiscal conditions, including aggregate and individual state data on general fund receipts, expenditures, and balances.  The survey was conducted by NASBO and completed by state budget officers in all 50 states over the period from August 2016 through October 2016.

According to the report, after several years of relatively weak economic activity, the states’ fiscal conditions are expected to show a moderate improvement in fiscal 2017.  The fiscal conditions continue to vary significantly among states. Progress after the Great Recession has been uneven and many are experiencing declining state tax collections.

Although many states are working to increase their rainy day funds for the next recession, other states are utilizing their reserves due to declining revenues. The variation among states is the result of numerous factors including: 1) differing tax and spending policies; 2) regional economic disparities; 3) negative impact of declining oil and gas prices on energy-producing states; and 4) changes in population and other demographics.

Total general fund revenues were estimated to increase by 2.5% in fiscal 2016.  However, general fund revenue growth declined to 1.8% in fiscal 2016 with two states having revenue collections below budget forecasts. In fiscal 2017, general fund revenues are projected to increase by 3.6% to $809 billion, up from $781 billion in fiscal 2016.

In addition, enacted state budgets for fiscal 2017 show general fund expenditures increasing 4.3% to $820 billion, up from $786 billion in fiscal year 2016.  The NASBO report indicates that increases in state general fund spending for fiscal 2017 totaling $26 billion will be directed mainly to K-12 education and Medicaid.  Enacted 2017 budgets also indicate aggregate spending increases in all areas of state budgets, including higher education, corrections, transportation and public assistance.

The survey also reported on “total balances” which include year-end balances and any budget stabilization funds that the states have set aside for use in a financial downturn.  In fiscal 2016, total balances decreased to $73.3 billion or 9.6% of general fund expenditures.  In fiscal 2017, total balances are expected to decrease with 31 states projecting lower total balance levels based on their enacted budgets.

Most state balances in rainy day funds have been improving.  In fiscal 2016, 29 states increased their rainy day fund balances and 25 states project increases in fiscal 2017. The median state’s rainy day fund balance was 5.1% of general fund expenditures in fiscal 2016 as compared to the prerecession peak median level in fiscal 2008 of 4.9%.

In addition, the report found that 20 states enacted tax cuts and 11 states enacted tax increases in fiscal 2017, resulting in net tax increases for the states of $1.3 billion.  States with the largest increases in taxes and fees were Louisiana, California, Pennsylvania and Michigan.  The largest enacted cuts were in Ohio.

Although there are measurable improvements in state budgets, state revenue growth is expected to remain limited.  Many states may continue to face tighter financial conditions in fiscal 2018 and fiscal 2019 due to slower revenue collections. The report states, “In this environment, states are likely to be cautious in their spending and revenue forecasts, as they continue to focus on ensuring structurally balanced budgets.”

The full report and summary are available here.