Fiscal Outlook

On June 20-22, 45 CSG members gathered in Washington, D.C. for the second annual Medicaid Policy Academy to learn more about Medicaid and how states can improve health outcomes for enrollees and, at the same time, run a more cost efficient program. Attendees had been nominated for attendance by health committee chairs in their home states as "rising stars" who were either new to positions of leadership on Medicaid policy or were likely to soon assume these positions.

The State Budget Crisis Task Force, established by Richard Ravitch and Paul Volcker, examined major threats to state fiscal sustainability, including federal deficit reduction, underfunded retirement promises, rapid Medicaid growth, and narrow and eroding tax bases. It recommended better federal-state communication, improved state budgeting and reporting practices, and broader state tax bases.
States experienced their second consecutive year of positive but slow growth in the 2012 fiscal year. Both revenue collections and spending from state funds increased, although at growth levels below the previous year. Additionally, the number of states making mid-year budget cuts continued to decline in 2012 and states have begun to replenish their rainy day funds and reserves. In the 2013 fiscal year, states are expected to continue their improvement, with both state revenues and state spending projected to grow. Revenue growth since the recession, however, remains weak by historical standards and general fund spending is expected to remain below peak levels. States are expected to face tight fiscal conditions for a number of years to come due to federal uncertainty, the slow pace of economic growth and increased spending demands.
Standard & Poor’s Ratings Services has public ratings on all 50 states and certain U.S. territories based on an analysis of a range of factors as outlined in its U.S. State Ratings Methodology. In addition to the ratings provided on general obligation bonds or ratings linked to the general credit rating of a state, such as appropriation secured bonds, hundreds of other state tax and revenue-supported obligations are rated. Similar to the broader municipal bond market, the range of bond security types issued by states is very diverse and runs the gamut of sales tax, gas tax, hotel tax, income tax, lottery revenue, liquor profits, and insurance premium assessments. The diversity of issuance in the state sector reflects the broad service and infrastructure responsibilities each state is responsible for funding.
Fiscal and economic recovery remains slow and painful for many states, as revenues struggle to get back to pre-recession levels while upward pressures on spending remain. Decreasing and increasingly unpredictable federal spending has put additional pressures on states, especially in the areas of health care and education. Labor trends have improved, but the severity of the recession has left its mark—long-term unemployment rates continue to be elevated, while labor participation rates hit their lowest levels in thirty years.

Falling gas prices caused U.S. consumer prices to drop at the fastest rate in four years.

The U.S. Bureau of Labor Statistics reported last Thursday the Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.4 percent in April on a seasonally adjusted basis. Over the last 12 months, consumer prices rose 1.1 percent before seasonal adjustment. That is well below the Fed's 2 percent inflation goal. The U.S. central bank targets a different gauge of prices that tends to run cooler than the Labor Department's index.

With no deal in sight, the cuts associated with sequestration took effect March 1. Now what? “The crystal ball here is very hazy. It’s hard to know what’s going to happen,” Michael Leachman, director of state fiscal research at the Center on Budget and Policy Priorities, said during a Council of State Governments’ webinar, “After Sequester: The Road Ahead for States.” “We don’t expect a deal to replace the 2013 sequestration, at least a freestanding bill, anytime soon.” But one thing is for certain—states will take a hit, and not just from the dollars they’ll lose in federal grant funding.

Stateline Midwest ~ January 2013

The start of video gaming in Illinois netted the state $1 million in November, and those figures could climb much higher in the months and years ahead.

Stateline Midwest ~ January 2013

The fiscal storm that rocked states late in the last decade has passed, but lawmakers will continue to feel its effects as they begin crafting new annual and biennial budgets.

In the wee hours of the New Year, Congress passed the American Tax Payers Relief Act to eliminate or delay the worst elements of the so called “fiscal cliff” and, hopefully, keep the ship of state from teetering into a new recession. While the drama over the fiscal cliff may have passed for the moment, the new Congress faces another set of crisis-laden deadlines within two months that could have big implications for state budgets.