WASHINGTON—Most states experienced poor fiscal conditions in 2008, with conditions for fiscal 2009 continuing to deteriorate and expected to continue to severely decline as the national recession deepens, according to the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO). Spending will decline this fiscal year for the first time since 1983.

In a report released today, The Fiscal Survey of States, NGA and NASBO found that state spending is expected to decrease by .1 percent for fiscal 2009, and states expect to make significant budget cuts in the coming fiscal years. Fiscal conditions varied across states, with some states benefiting more than others from this summer’s run-up in energy and commodity prices while others were significantly more exposed to the economic downturn sparked by the housing crisis. Unfortunately, virtually all states are now in recession or at risk, and states expect continued expenditure pressures from a variety of sources, including Medicaid, employee pensions and infrastructure. In addition, because states historically have continued to feel the impact of national economic downturns even after recovery begins, states could face even more difficult financial conditions in fiscal 2010 and beyond.

In fiscal 2008, state general fund spending growth was 5.3 percent—lower than the 31-year state spending average of 6.3 percent. Six states reported negative budget growth for 2008, and 18 states enacted negative growth budgets for fiscal 2009. State revenue collections were up 2.2 percent in 2008, and 25 states exceeded their original revenue projections; 5 states met their projections; and 20 states were below projections.

“The housing market decline continued to negatively affect state revenues, particularly corporate and sales tax revenues,” said NGA Executive Director Raymond C. Scheppach. “Given the continued stall in credit availability, rising unemployment rates and increasing demand for state services such as Medicaid and welfare as people lose their jobs, the fiscal outlook for states is likely to get worse.”

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 2009, however, the report shows an expected decline. Total balances in fiscal 2007 were $65.9 billion—a healthy 10.1 percent of expenditures; in fiscal 2008 total balances were $50.8 billion—or 7.4 percent of expenditures. In fiscal 2009, balances are projected to decline to $48 billion—or 7 percent of expenditures. However, if the balances of oil rich states Alaska and Texas are removed from the total, the figure is closer to 4 percent and expected to decline further in early 2009 as states use up their reserves.

“State fiscal conditions are on a significant downward trend,” said NASBO Executive Director Scott D. Pattison. “We expect a continued deterioration in all financial indicators including revenues, balances and expenditures.”

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

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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, NASBO is the instrument through which the states collectively advance state budget practices. 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. 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. Association membership is organized into four standing committees—Health, Human Services, and Justice; Financial Management, Systems, and Data Reporting; Tax, Commerce, Physical Resources, and Transportation; and Training, Education, and Human Resources Management. NASBO is an independent professional and educational association and is also an affiliate of the National Governors Association.