Budget conditions improving, but effects of recession still felt in Midwest

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.

Nationally, state spending levels in fiscal year 2013 will still fall nearly $6 billion below levels in FY 2008, the National Association of State Budget Officers reports in its latest “The Fiscal Survey of States.” Indiana and Michigan are among the states where general-fund spending in FY 2013 is expected to be lower than expenditures five years ago, NASBO data show.

When all 50 states close the books this year on FY 2013, total revenue collections are projected to surpass pre-recession levels for the first time. However, NASBO notes that when this revenue is adjusted for inflation, FY 2013 collections are 7.9 percent lower than they were in 2008.

State budget conditions, though, have at least stabilized and improved in much of the Midwest. In FY 2012, revenue collections exceeded initial forecasts in 10 of the region’s 11 states. (Kansas, where revenues came in on target, was the lone exception.) And for FY 2013, five states in the region — Indiana, Iowa, Nebraska, North Dakota and South Dakota — expect to have end-of-the-year balances that exceed 10 percent of expenditures.

Four days after publication of the NASBO report, the U.S. Census Bureau released data showing that tax collections for the third quarter of calendar year 2012 were up in nine of the 11 Midwestern states (see table).

The lone exceptions were Michigan and South Dakota. The negative rate of revenue growth in Michigan was due to a cut in the state business tax. And in South Dakota, budget officials say the state’s overall general-fund receipts for 2013 will be nearly $57 million higher than they were in FY 2012.