STATES EXPERIENCE TIGHTER FISCAL CONDITIONS AS NATIONAL ECONOMY CONTINUES DECLINE
NGA and NASBO Release Latest Fiscal Survey of States
WASHINGTON-Fiscal 2008 marked a turning point in state finances, with a significant increase in the number of states experiencing fiscal difficulties after several years of relative stability, according to the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO).
In a report released June 19, 2008, The Fiscal Survey of States, NGA and NASBO found that while fiscal conditions varied dramatically across states, overall expenditure growth rates declined in fiscal 2008 and the number of states experiencing revenue shortfalls increased. States expect continued expenditure pressures from a variety of sources, including health care and Medicaid, employee pensions and infrastructure. In addition, because states historically have continued to feel the impact of national economic downturns even after recovery begins, states could face even more difficult financial conditions in fiscal 2009 and beyond.
In fiscal 2008, state general fund spending growth was 5.1 percent-about one-quarter lower than the 31-year state spending average of 6.7 percent. Additionally, governors' recommended budgets for fiscal 2009 reflect a 1.0 percent increase in general fund spending. For 2008, four states projected negative expenditure growth, and 18 states reported negative growth in the governors' recommended budgets for fiscal 2009. Also in fiscal 2008, 13 states reduced their enacted budgets, compared to three states in fiscal 2007, primarily as a result of a slowdown in revenue collections.
"Fallout from the housing market decline, coupled with dramatic increases in the price of energy, is having a negative impact on state revenues, particularly corporate and sales tax revenues," said NGA Executive Director Raymond C. Scheppach. "Governors know that meeting increasing expenditure expectations with limited revenues will present challenges even after the national economy rebounds."
State revenue collections were up 1.7 percent in fiscal 2008, with 15 states exceeding their original revenue projections, 14 states meeting their projections and 20 states falling below their projections.
States' largest expenditure for fiscal 2008 was health care, which accounts for nearly one-third of total state spending. Medicaid alone comprises about 22 percent of total state spending. With a projected growth rate of 8 percent annually through fiscal 2018, health care spending will continue to strain state budgets. Meanwhile, about half of governors included proposals to expand health care coverage for the uninsured in their proposed fiscal 2009 budgets. Approaches include using traditional Medicaid expansion and flexibilities offered under the Deficit Reduction Act, expanding the State Children's Health Insurance Program, and using public-private partnerships to increase coverage.
"This report reflects the impact of the economic downturn across the states, with some states beginning to experience a period of much slower spending and revenue growth," said NASBO Executive Director Scott D. Pattison. "Although states' total balances are relatively healthy right now, we are likely to see them dip dramatically over the next year or two as more states feel the full effects of the downturn."
Total year-end balances-ending balances and the amounts in budget stabilization funds-are a critical tool states use to balance their budgets during downturns. For fiscal 2008, however, the report shows a decline. At their peak in fiscal 2006, state balances totaled $69 billion-a very healthy 11.5 percent of expenditures. In fiscal 2007, total balances dropped to 10.5 percent of expenditures. Balances for fiscal 2008 are estimated at 8 percent of expenditures and are projected to drop to 7.5 percent of expenditures in fiscal 2009.
This edition of The Fiscal Survey of States reflects actual fiscal 2007, estimated fiscal 2008 and fiscal 2009 state budget data from governors' recommended budgets. The data were collected during spring 2008.
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Founded in 1908, the National Governors Association (NGA) is the collective voice of the nation's governors and one of Washington, D.C.'s, most respected public policy organizations. Its members are the governors of the 50 states, three territories and two commonwealths. NGA provides governors and their senior staff members with services that range from representing states on Capitol Hill and before the Administration on key federal issues to developing and implementing innovative solutions to public policy challenges through the NGA Center for Best Practices. For more information, visit www.nga.org.
The National Association of State Budget Officers (NASBO) has served as the professional membership organization for state finance officers for more than sixty years. NASBO is the instrument through which the states collectively advance state budget practices. As the chief financial advisors to our nation's governors, NASBO members are active participants in the public policy discussions at the state level. The major functions of the organization consist of research, policy development, education, training, and technical assistance. These are achieved primarily through NASBO's publications, membership meetings, and training sessions. For more information, visit www.nasbo.org.