Despite receiving funds from the American Recovery and Reinvestment Act of 2009, state fiscal conditions deteriorated for nearly every state during fiscal 2009, according to the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO). The nationwide shortfall is expected to be $200 billion over the next three years.
In the biannual report released today, The Fiscal Survey of States, NGA and NASBO found the economic recession, which began in December 2007, has significantly dampened the outlook for upcoming fiscal years, with more than half of states experiencing negative budget growth in fiscal 2009 and nearly three-quarters recommending fiscal 2010 budgets with negative growth.
In fiscal 2009, state general fund expenditures declined 2.2 percent—the first decline in actual state general fund spending since 1983. Likewise, governors’ recommended budgets for fiscal 2010 represent a 2.5 percent decrease in general fund expenditures, which would mark the first time actual state spending declined two years in a row. The weakening of state fiscal conditions means that between fiscal 2009 and 2011, states must fill more than $183.3 billion in budget gaps, after previously closing gaps totaling $46.2 billion. More than three-quarters of states already have cut their enacted fiscal 2009 budgets by $31.6 billion through strategies such as targeted budget reductions and furloughs.
Expenditure pressures will continue to grow as the demand for state services such as Medicaid, unemployment and welfare increases in conjunction with growing unemployment. In addition, states must continue to deal with looming long-term issues such as funding pensions, employee health care and maintenance and repair of infrastructure.
“States economies lag behind the national economy during economic downturns. Fortunately for states, Congress timed the stimulus package so that some drastic budget cuts and revenue increases in fiscal 2009 were avoided,” said NGA Executive Director Raymond C. Scheppach. “In this past year, governors have worked hard to balance the budget by cutting spending first, while protecting services like Medicaid and education. Unfortunately because of steep declines in state revenues, they cannot rely on cuts alone; states must find new revenue sources for fiscal 2010.”
State revenue collections were down 6.1 percent in fiscal 2009, with two states exceeding their original revenue projections, 10 states meeting their projections and 30 states falling below their projections.
“Revenues have come in below even the most pessimistic forecasts,” said NASBO Executive Director Scott D. Pattison. “Plunging revenues have caused the unraveling of state budget plans, continuing to force states to make painful decisions.”
Total year-end balances—ending balances and the amounts in budget stabilization funds—are resources for states during fiscal downturns and to address budget shortfalls. Following the last recession, states rebuilt year end balances to a peak in 2006 of $69 billion—nearly 11.5 percent of expenditures. Fiscal 2008 balances declined slightly to 9.1 percent of expenditures. However, balance levels have fallen significantly during fiscal 2009 to 5.5 percent of expenditures and are projected to drop to 5.3 percent of expenditures based on governors’ recommended fiscal 2010 budgets.
This edition of The Fiscal Survey of States reflects actual fiscal 2008, estimated fiscal 2009 and recommended fiscal 2010 figures. The data were collected during spring 2009.
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.
Founded in 1945, the National Association of State Budget Officers (NASBO) is the instrument through which the states collectively advance stage budget practices. The major functions of the organization consist of research, policy development, education, training, and technical assistance. These are achieved primarily thought NASBO’s publications, membership meetings, and training sessions. Association membership is composed of the heads of state finance departments, the states’ chief budget officers, and their deputies. All other state budget office staff are associate members. NASBO is an independent professional and education association and is also a self-governing affiliate of the National Governors Association.
For more information, visit www.nasbo.org.