National Association of State Budget Officers

Overall, state fiscal conditions showed modest improvements in fiscal year 2015. Revenue growth accelerated, mostly due to strong income tax collections, while total state spending from all fund sources increased at its fastest rate since 1992 due to additional federal funds from the Affordable Care Act. In addition, the number of states making mid-year budget cuts remained low, and states’ total balances reached an all-time high in actual dollar terms. In fiscal 2016, states expect both revenue and spending to grow slowly. However, some states are facing significant budgetary challenges associated with the decline in oil prices. It is likely that budget proposals for fiscal 2017 and beyond will remain mostly cautious with limited spending growth.

Fiscal conditions for states were somewhat mixed in the 2014 fiscal year as state general fund revenue growth declined due to the impact of the federal fiscal cliff, while total state spending growth accelerated due to increased federal Medicaid funds from the Affordable Care Act. The number of states making midyear budget cuts remained low and states maintained stable rainy day fund levels. In the 2015 fiscal year, states are expecting both revenue and spending to grow slowly, but below the historical rate of growth. It is likely that budget proposals for the 2016 fiscal year and beyond will remain mostly cautious with limited spending growth.

Fiscal conditions began to improve for states in the 2011 fiscal year. State revenue collections grew by 6.4 percent and state general fund spending increased by 4 percent following two consecutive years of declines. Additionally, the number of states making midyear budget cuts dropped from 39 states in fiscal 2010 to 19 states in fiscal 2011. In the 2012 fiscal year, states are expected to continue their recent improvement with both state revenues and state spending projected to grow. Fiscal conditions, however, remain below pre-recession levels in many states even with the recent increases. States will have to continue to make difficult decisions in the 2013 fiscal year and beyond as they contend with increased spending demands, slowly recovering revenue collections, uncertainty regarding future federal funding and long-term liabilities including pensions and retiree health care costs.

Over the past few decades, more states have move away from the use of biennial fiscal cycles in favor of annual budgets, but Iowa and Michigan are considering bucking that trend.

Fiscal conditions rapidly deteriorated for states in the 2009 fiscal year as the nation remained in a prolonged economic downturn. States experienced unprecedented declines in both revenues and state spending, while rainy day fund levels sharply declined from the 2008 fiscal year. While the national economy may be slowly recovering, conditions have not improved for states in the 2010 fiscal year. State spending is projected to be negative for the second year in a row. Revenue collections remain weak, with total collections declining for a record five consecutive quarters. The state fiscal outlook is expected to remain grim in fiscal 2011 and beyond as Recovery Act funds decrease and revenues are slow to recover.

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