WASHINGTON—Lingering effects of the recent recession and the uncertainty surrounding proposals to reduce federal debt and cuts in federal funds flowing to states are still hampering state budgets, according to the The Fiscal Survey of States, released today by the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO).

While the economy is improving, and finances are modestly recovering, states are still faced with recession-induced challenges and looming long-term issues that will continue to have implications for operating budgets in fiscal 2013. Although fiscal 2013 spending levels are higher than last year, they are still almost $6 billion below 2008 levels and the amount of growth is lower than in 2012. However, signs of budget volatility have subsided compared to the years immediately following the recession when states had to make substantial cuts and take other actions to balance their budgets.

“The uncertainty surrounding federal efforts to cut its debt and the implications this has on states leaves governors with their hands tied,” said NGA Executive Director Dan Crippen. “Another recession would be devastating for states, especially when many states have barely recovered from the last recession. Governors recognize that there will be reductions in federal funding for state programs, but they should be done equitably and in consultation with governors.”

“States are seeing stability in their fiscal conditions, although many have yet to return to their pre-recession levels,” stated NASBO Executive Director Scott Pattison. “Money is still expected to be very tight. There are not enough state dollars to meet all of the challenges from rising health care and education costs and other expenses like corrections and infrastructure.”

The fiscal fallout from unprecedented revenue declines in fiscal 2009 and 2010 puts states well below historical growth trends in general fund spending and revenue. Many states are still challenged with slow revenue growth and unrelenting expenditure pressures including unemployment rates.

General fund spending is expected to increase, although at a slower rate than the historical average. General fund appropriations total $681 billion, a 2.2 percent increase over the nearly $667 billion spent in fiscal 2012. The growth rate is slower than the previous year when there was a 3.4 percent increase in fiscal 2012 over the $645 billion in state general fund spending in fiscal 2011.

Aggregate general fund revenues are expected to surpass peak pre-recession levels for the first time since the onset of the recession. Enacted fiscal 2013 budgets project general fund tax revenues to reach $693 billion, $26 billion or 3.9 percent above the $667 billion collected in fiscal 2012. States ended fiscal 2012 with total general fund revenues up almost $17 billion or 2.5 percent over fiscal 2011.

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