Fiscal Outlook

Fiscal conditions for states continued to moderately improve in the 2013 fiscal year. Revenue collections exceeded projections for the vast majority of states and spending from both state funds and federal funds experienced stronger growth in comparison to the 2012 fiscal year. Additionally, the number of states making midyear budget cuts remained low and states have continued to replenish their rainy day funds and reserves. In the 2014 fiscal year, states are expected to have continued positive revenue and spending growth. Revenue and spending growth rates, however, are expected to be slower than last year. States are cautiously optimistic that fiscal conditions will continue to slowly improve in the 2015 fiscal year and beyond, although challenges remain.

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When the Great Recession began to hit states, they had a total of $59.9 billion in reserves. A year later, total budget gaps were nearly double that figure, $117.3 billion.

“States found themselves woefully short in terms of the amount of savings they had to offset the budget shortfalls created by the crisis,” Robert Zahradnik of The Pew Charitable Trusts told lawmakers at the Midwestern Legislative Conference Annual Meeting. “A lot of that is because savings is not the highest priority when it comes to making state budgets.”

The fiscal crisis is over, but it has opened new questions about budget planning and management. Prior to the Great Recession, for example, a fiscal reserve of 5 percent of the total budget was considered a sound target. Now, Zahradnik said, the preferred goal tends to be between 8 and 10 percent. Part of the reason is that state revenue sources have simply become more volatile, thus the need to better plan for more-extreme “rainy days.”

The fiscal skies are clearing, but states still have some tough decisions to make.

Experts shared strategies states can use to improve their standing in a number of areas, including rainy day reserves, pensions and international trade, during Sunday’s session, Fiscal and Economic Outlook for 2015.

According to Mary Murphy of the Pew Charitable Trusts, state shortfalls outstripped savings nearly two-to-one during the Great Recession. Post-recession, however, state tax revenues are showing overall improvement.

The CSG West Fiscal Affairs Committee provided a forum for chairs and members of budget, appropriation and revenue or tax committees in Western legislatures to exchange ideas and experiences on issues affecting state budgets. The committee addressed fiscal issues associated with the impact of the recession, state fiscal trends, taxation, business incentives, revenue forecasting and performance-based budgeting.

Full effects of the United States’ Standard and Poor’s (S&P) credit downgrade in 2011 are yet to be fully known, especially for state governments. The map below looks at the S&P’s state credit ratings for each of the 50 states.

Governors are releasing their budget proposals for fiscal year 2015, which for most states will begin on July 1, 2014. Seventeen states previously enacted two-year budgets covering both fiscal years 2014 and 2015. The National Association of State Budget Officers has compiled a comprehensive list of links to proposed and previously enacted budgets for states and territories - check it out here: National Association of State Budget Officers.

Jennifer Burnett, CSG Program Manager, Fiscal and Economic Development Policy, outlines the top five issues for 2014 related to fiscal and economic development policy, including pervasive federal instability, a sluggish recovery, soaring health care costs, a stagnant labor market and new demands on state resources for economic development.

Despite the high drama surrounding the current federal government shutdown and debt ceiling negotiations, a recent poll showed that about 30 percent of Amercians are not really concerned about any fallout affecting their personal lives.

Moody’s outlook at the state level has been negative for five years; however, on August 20, 2013 Moody’s Investors Services has revised its outlook for US states to stable from negative. Moody’s outlook on US states primarily reflects their view of the slowly improving US economy and monetary system, as well as the U.S. dollar’s status as the world’s key reserve currency.

Stateline Midwest ~ 2013 MLC Annual Meeting Edition

States are back to pre-recession spending levels, rainy-day funds and other reserves are being replenished, and multiple years of cutbacks in state and local government workforces have come to an end.
These trends, Scott Pattison said during a meeting of the Midwest’s fiscal leaders, are all signs that states have weathered one of the most trying budget periods in generations.
“We’re in a slow, slog [economic] recovery,” he said during a presentation at the Midwestern Legislative Conference Annual Meeting.
The slowness of that recovery is one reason he suggested caution to the region’s state legislators as they set fiscal agendas in the years ahead.