NGA Contact: Jodi Omear, 202-624-5346
NASBO Contact: Scott Pattison, 202-624-8804

Press Conference Video

WASHINGTON—Although states experienced stable finances in 2007, overall revenue growth has slowed and tighter fiscal conditions are expected in 2008, according to the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO).

In a report released today, The Fiscal Survey of States, 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. States expect continued expenditure pressures from a variety of sources, including increased funding demands related to health care and Medicaid and to long-term challenges such as demographic shifts, employee pensions and infrastructure. In addition, most states will feel the pinch of the nation’s weakening housing market, both directly from lower sales tax revenues and indirectly as local governments struggle with declining property values and decreasing property tax revenues.

“Steadily rising health care costs, softening in the housing sector and the need to address looming issues such as aging populations are putting mounting spending pressure on states at the same time as federal funding for critical programs is leveling,” said NGA Executive Director Raymond C. Scheppach. “Governors realize that meeting these increasing expenditure expectations with limited revenues will be problematic in the future.”

In fiscal 2007, state general fund spending growth was 9.3 percent—approximately three percentage points above the 30-year historical state spending average of 6.4 percent. One state reported negative expenditure growth for 2007, and seven states enacted negative growth budgets for fiscal 2008. State revenue collections were up 5.6 percent in 2007, and 38 states exceeded their original budget projections, 4 states met their projections and 8 states were below projections.

States’ single largest expenditure for fiscal 2007 was health care, which accounts for nearly one-third of total state spending.   Medicaid alone comprises about 22 percent of total state spending, and with a projected spending growth rate of 8 percent annually for the next decade, the program will continue to strain state budgets.  Meanwhile, states face significant challenges in funding and providing health care in fiscal 2008, including expanding the State Children’s Health Insurance Program to reduce the number of uninsured children in their states; reductions at the federal level for public and other health programs; and the impact of the aging population on long-term care financing.

“This report shows that most states are moving from peak fiscal conditions to a period of much slower spending and revenue growth,” said NASBO Executive Director Scott D. Pattison. “State spending growth is expected to slow in fiscal 2008, and long-term spending pressures suggest more states will face very tight budgets in the next few years.”

Total year-end balances—ending balances and the amounts in budget stabilization funds—are a critical tool states use to balance their budgets during downturns. For fiscal 2008, however, the report shows an expected decline. Total balances in fiscal 2006 were $69 billion—a very healthy 11.5 percent of expenditures; in fiscal 2007 total balances were $62.7 billion—or 9.6 percent of expenditures. In fiscal 2008, balances are projected to decline to $47 billion—or 6.9 percent of expenditures.

This edition of The Fiscal Survey of States reflects actual fiscal 2006, preliminary actual fiscal 2007 and appropriated fiscal 2008 figures. The data were collected during fall 2007.

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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.

The National Association of State Budget Officers (NASBO) has served as the professional membership organization for state finance officers for more than sixty years. NASBO is the instrument through which the states collectively advance state budget practices. As the chief financial advisors to our nation’s governors, NASBO members are active participants in the public policy discussions at the state level. The major functions of the organization consist of research, policy development, education, training, and technical assistance. These are achieved primarily through NASBO’s publications, membership meetings, and training sessions. For more information, visit www.nasbo.org.