The National Governors Association (NGA) and the National Association of State Budget Officers (NASBO) released their most recent Fiscal Survey of the States today and while things are looking better for states, tough times are still ahead. State revenues have been creeping back since the Great Recession but still remain strained, while states continue to make deep cuts to balance budgets.  The bottom line: states will likely continue to fiscally struggle in the years ahead.

The Fall 2011 Fiscal Survey of States reveals that there has been some relative financial improvement for states over the last year, including rising tax collections, growing general fund expenditures, and a slow restoration of state rainy day fund balances. 

However, according to the report, while aggregate state revenues started rebounding slightly in 2011, revenue still remained below pre-recession levels. That will continue to put states in a pinch, especially because the demand for services—like unemployment benefits, food assistance and welfare benefits—continues to climb amid high jobless rates and increasing poverty.

SOURCE: National Association of State Budget Officers

In 2011, states focused largely on cutting expenses rather than increasing revenues as a way to end the year in the black. NASBO’s survey shows that, while enacted fiscal 2012 budgets contained a 2.9 percent year-over-year increase in general fund spending, it is still $20 billion, or 3.1 percent, less than the pre-recession high of $687 billion in fiscal 2008.

The depth of the recent recession has left states so low on revenue that even historically “sacred” areas of state budgets – like health care and education – saw significant cuts despite Recovery Act funds that helped cushion those areas from even greater cuts.  However, those federal funds have largely run out and the improved revenue picture may not be enough to offset those losses.

Scott Pattison, NASBO’s executive director, recently told CSG: “There’s no question that even though we’ve seen some revenue growth in the first part of this calendar year and we hope that continues, we’re not necessarily seeing enough revenue growth to make up for what’s been previously cut.” Check out Scott's blog on the new report's findings HERE and see what he had to say to Capitol Ideas Magazine in a recent interview on fiscal conditions HERE.

Year-Over-Year Nominal Percentage Change in General Fund Spending, FY 2011-FY 2012

DATA SOURCE: National Association of State Budget Officers