The National Governors Association (NGA) and the National Association of State Budget Officers (NASBO) recently released the 2010 Fiscal Survey of the States.  As described in the report, the survey “presents aggregate and individual data on the states’ general fund receipts, expenditures, and balances.  Although not the totality of state spending, these funds are used to finance most broad-based state services and are the most important elements in determining the fiscal health of the states.”

As reported in the Executive Summary, “after two of the most challenging years for state budgets, fiscal 2011 will present a slight improvement over fiscal 2010.  However, even an improvement over one of the worst time periods in state fiscal conditions since the Great Depression states still forecast considerable fiscal stress…in fiscal 2012 a significant amount of stat funding made available by the America Recovery and Reinvestment Act of 2009 will no longer be available.  The significant wind down of this support will result in a continuation of extremely tight fiscal conditions for states and could lead to further state spending cuts.”

Furthermore, state general fund receipts typically lag behind national economic recoveries.  So, even though the national recession was declared over, the nation’s economic recovery has also been slow to develop.  These factors, the report notes, suggest that state revenue will remain well below pre-2008 recession levels.

Indeed, the report notes that “State general fund expenditures have been so negatively affected by this recession that both fiscal 2009 and fiscal 2010 saw nominal declines in state spending. These back to back declines, only the second and third time that state general fund spending has declined in the history of this report, also marks the first time in which states have had consecutive years of lower general fund spending.”

Even in this environment, there are some signs of improvement in fiscal 2011.

The survey found that:

  • 35 states enacted budgets with higher general fund spending compared to fiscal 2010;
  • 36 states still forecast lower general fund spending in fiscal 2011 compared to fiscal 2008;
  • Fiscal 2010 general fund expenditures were $612.6 billion compared to $660.9 billion in fiscal 2009, a 7.3 percent decline;
  • Fiscal 2011 state enacted budgets call for $645.1 billion in general fund spending, a 5.3 percent increase. In comparison to fiscal 2011; and,
  • General fund spending in fiscal 2008 was $687.3 billion which was $74.7 billion greater than spending in fiscal 2010 and $42.2 billion greater than general fund expenditures in fiscal 2011

Not surprisingly, reduced general fund spending was the result of “significant declines in sales, personal income, and corporate income tax collections.”  Collectively, revenue from these taxes constitutes nearly 80 percent of general fund revenue.  Moreover, “total general fund tax revenues in 2010 were $609.7 billion compared to $680.2 billion in fiscal 2008, a decline of 10.4 percent.”

The prolonged national recession and slow recovery have placed significant pressures on state budgets as individual have increasingly sought state funded services, such as Medicaid.  Increased demand for services has forced states to close nearly $230 billion in budget gaps between fiscal year 2009 and 2011.  Yet, as reflected in the Fiscal Survey of the States, pressures remain.  Nearly 11 states continue to report budget deficits of roughly $10 billion.  As states are required to have balanced budgets, these shortfalls must be addressed by the end of each states fiscal year 2011.

Looking forward, the survey found that “thus far 23 states are reporting $40.5 billion in budget gaps for fiscal 2012 and 17 states are reporting $40.9 billion in budget gaps for fiscal 2013.  In order to help close state budget gaps, 39 states made $18.3 billion in mid-year budget cuts to their fiscal 2010 budgets while 14 states have already made $4.0 billion in cuts to their fiscal 2011 enacted budget. The dramatic speed at which general fund revenue declined is also highlighted by the 42 states which made mid-year budget cuts of $41.6 billion in fiscal 2009.”

In addition to new taxes and fees, which several states have implemented, a number of states have tapped reserved that were built prior to the recession.  Finally, states utilized nearly $151 billion in flexible emergency funding that was provided by the American Recovery and Reinvestment Act.  These funds have now expired, removing one source of revenue that has been available to states for addressing pressing budget issues.

Click here to view a complete copy of the Fiscal Survey of the States, Fall 2010.