In most Midwestern states, moderate revenue growth will shape new annual, biennial budgets
Still, most legislatures and governors are having to adjust to an era of less-robust growth. Over the past 35 years, increases in state budgets have averaged 5.5 percent per year, and states have not reached this figure for eight straight fiscal years.
Meanwhile, significant spending pressures remain, most notably in Medicaid. This public health-insurance program, funded by the states and the federal government, has been the fastest-rising line item in state budgets and now accounts to close to one-fifth of general-fund expenditures.
A mix of increased spending demands and limited revenue gains means considerable fiscal challenges for states in the months ahead, the NASBO study concludes.
And in two Midwestern states, Illinois and Kansas, the challenges are especially difficult.
Tough Year ahead in Illinois, Kansas
On Jan. 1, Illinois’ temporary increase in individual and corporate income taxes began to be rolled back. Those two changes in tax law will result in a revenue loss of nearly $2 billion in FY 2015 (equal to about 5 percent of total revenue for the state). The impact of this rollback becomes even more pronounced in FY 2016 — an estimated net decline in revenue of nearly $3 billion.
In Kansas, general-fund revenues fell 10.8 percent between fiscal years 2012 and 2013 due in part to a series of legislated cuts to the state income tax.
More recently, a $280 million gap in the current budget had to be closed due to a downgrade in FY 2015 revenue projections. In December, Gov. Sam Brownback announced three strategies to fix the deficit: a reduction in state pension contributions, a 4 percent cut in funding for state agencies, and a transfer of money from various funds (including the state’s highway fund) to the general fund.
The Legislature will have to address an even larger FY 2016 budget deficit during this year’s session.
“Without new revenue, lawmakers will need to cut approximately $669 million just to keep the general fund solvent in FY 2016,” former Kansas budget director Duane Goossen writes in his blog kansasbudget.com. “That would be more than a 10 percent cut to every single item [in the budget], on top of the cuts the governor already imposed in FY 2015.”
Another factor in Kansas is an ongoing legal challenge to the state’s funding of K-12 education. In late December, a state District Court ruled that the state’s school-finance system was “constitutionally inadequate.”
|Stateline Midwest - January 2015||932.43 KB|