Report Says State Finances Recovering in FY- 2013 But Still Show Uneven Progress

WASHINGTON – A new report from the National Association of State Budget Officers (NASBO) and the National Governors Association (NGA) found that the fiscal situation in states in 2013 is recovering along with the U.S. economy. The recession is still affecting state budgets, though, the report noted.

To start, the report said most 2013 fiscal-year budgets are growing compared with 2012 budgets. Enacted 2013-FY budgets estimate revenues increasing by 3.9% from FY-2012. The report adds that FY-2013 will likely be the turning point for State tax collection, with many states projecting general fund revenues higher than pre-recession levels for the first time since the recession’s start. The report notes that personal income tax collections will increase in 2013 and will account for the majority of the growth in general fund revenues. Income tax is more than three times the increases in sales tax collections during the last three years. As a caveat, 21 states are forecasting lower general fund revenues in 2013 compared to FY-2008.

Although revenue is growing, 24 states have enacted lower spending levels in FY-2013 than in FY-2008. States are beginning to increase spending over 2012, though, with 42 states having increased general fund spending for FY-2013 when compared with FY-2012. Despite this increase in spending, revenue growth hasn’t met the rise in demand for state services and mandated spending. A total of 17 states have closed $37 billion in budget gaps thus far in FY-2013, and 33 states solved $72.4 billion in budget gaps, respectively.

For FY-2013, states enacted $6.9 billion in new net taxes and fees, with California and Arizona enacting the majority of the increases. States also enacted measures that would bring in $2.5 billion in revenue from other sources. In FY-2012, states reduced taxes by $600 million, with temporary tax and fee increases expiring in California and North Carolina.

The 2013 state budgets show the expiration of funds from the American Recovery and Reinvestment Act. In FY-2011, states used $50 billion in flexible ARRA funds, but by FY-2012, that amount fell to $5.5 billion. The drop in funds was due to the expiration of federal matches for states’ Medicaid programs and expiring additional education funds from the State Fiscal Stabilization Fund.

The Fiscal Survey of States report is published twice annually by NASBO and NGA. The survey series began in 1979. NASBO conducted the survey between August and October 2012. State budget officers in all 50 states completed the survey. The survey also includes data from Puerto Rico, though its data is not included in the 50-state totals in the report.