States’ Fiscal Conditions Are Getting Shakier

Published March 1, 2008

Though most states experienced strong revenue growth during the past fiscal year, expected revenue declines and spending pressures could leave many states in worse financial condition this fiscal year.

That’s one of the findings in the annual “Fiscal Survey of States” conducted by the National Governors Association (NGA) and National Association of State Budget Officers (NASBO). The survey results were released in December.

“NGA and NASBO found that while most states experienced healthy revenue growth during fiscal 2007, some states already have seen significant deterioration of their fiscal conditions and expect revenue and expenditure growth to slow significantly in fiscal 2008,” the groups said in a joint statement.

Spending Surge

State spending in fiscal 2007, which ended June 30 in most states, rose 9.3 percent, above the 30-year average rate of 6.4 percent and more than triple the rate of inflation, according to the survey.

“The high rate of growth [in 2007] is the result of states using surpluses realized in recent years to provide tax cuts and bolster spending on programs that experienced significant budget cuts in the last fiscal downturn,” the report states.

Growing costs for Medicaid, government employee pensions, and infrastructure maintenance and repair will put the most pressure on state budgets this year, according to the report.

Medicaid Pressures

Medicaid is supposed to provide health insurance to poor persons, but many states allow individuals earning far more than the poverty level to qualify. Even with the federal government providing about half the funding for Medicaid, the program is a heavy burden for most states. The report notes Medicaid typically makes up 22 percent of a state’s budget.

The weakening housing market is also expected to have an impact, according to NGA and NASBO, “both directly from lower sales tax revenues and indirectly as local governments struggle with declining property values and decreasing property tax revenues.”

Steve Stanek

For more information …

“Fiscal Survey of States”: