WASHINGTON—While the overall fiscal condition of states has improved from the depths of the recession, the Fall 2011 Fiscal Survey of States, released today by the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO), shows that states are facing a ‘big squeeze’ from both local and federal governments. The combination of the effects of the economic downturn, tepid economic growth and the expiration of Recovery Act and other federal funds has severely impeded the growth of state resources. Additionally, spending on Medicaid is expected to consume an increasing share of state budgets and grow much more rapidly than state revenue growth, resulting in slow or no growth in education, transportation or public safety.

Overall, state 2012 enacted budgets include nearly $667 billion in general fund expenditures, a 2.9 percent increase compared to $648 billion in general fund spending in 2011. Despite the second year with an increase, total enacted general fund spending in 2012 is still $21 billion less than the pre-recession high of $687 billion in 2008.

At the same time, local government revenues have been severely impacted by the decline in housing values. Many local governments, including school districts, rely heavily on property taxes to support their activities.  These jurisdictions have been pressing states for more local assistance.

“State governments are feeling the squeeze from the demands for spending from both local and federal governments,” said NGA Executive Director Dan Crippen. “Revenues are up slightly, but they do not yet meet 2008 levels, and the reduction of federal funds compounds the fiscal challenges for states.” 

Although state general fund revenues increased in both 2011 and 2012, the dramatic declines in revenue collections experienced in 2009 and 2010 leaves total general fund revenues in 2012  $21 billion below their 2008 level. Specifically, revenue collections in 2012 reflect a 5.2 percent increase in personal income tax revenue and a 0.1 percent decrease in corporate income tax revenue and, in addition, a 0.3 percent decrease in sales tax revenue (in part because of the end of temporary sales increases in a few states). This growth will likely not be enough to even overcome the reductions in federal funds provided through the Recovery Act that began in 2011.

“This report shows that state budgets are certainly improving, however growth is weak and there is not enough money for all of the bills coming in,” said NASBO Executive Director Scott Pattison. “State officials will still be cutting some programs and increases in funding for any program except for health care will be rare.”

The downward revision last week in the estimates for economic growth, the continued fiscal exigencies of the federal government, weakness in housing and the inexorable growth in Medicaid spending all mean there is little relief in sight for state budgets.

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Founded in 1908, the National Governors Association (NGA) is the collective voice of the nation’s governors and one of Washington, D.C.’s most respected public policy organizations. Its members are the governors of the 50 states, three territories and two commonwealths. NGA provides governors and their senior staff members with services that range from representing states on Capitol Hill and before the Administration on key federal issues to developing and implementing innovative solutions to public policy challenges through the NGA Center for Best Practices. For more information, visit www.nga.org.

Founded in 1945, the National Association of State Budget Officers (NASBO) is the instrument through which the states collectively advance stage budget practices. The major functions of the organization consist of research, policy development, education, training, and technical assistance. These are achieved primarily thought NASBO’s publications, membership meetings, and training sessions. Association membership is composed of the heads of state finance departments, the states’ chief budget officers, and their deputies. All other state budget office staff are associate members. NASBO is an independent professional and education association and is also a self-governing affiliate of the National Governors Association. For more information, visit www.nasbo.org.