Enacted state budgets for fiscal 2016 represent a sixth consecutive year of spending and revenue growth, according to this report. Forty-three states enacted general fund spending increases for fiscal 2016, helping to bolster core services such as K-12 education and health care. Overall, state fiscal conditions continue to be stable, but growth remains modest and long-term spending pressures continue to increase, often faster than state revenues.
In fiscal 2014, Medicaid comprised 51 percent of all federal funds to states, according to NASBO’s State Expenditure Report, released in November 2014. This marked the first time in the 27-year history of the State Expenditure Report that Medicaid represented over half of all federal funds to states.
This report shows that state budgets are expected to continue on a path of stable, moderate growth, with 42 governors recommending spending increases for fiscal 2016. However, progress is slow, and structural issues and long-term spending pressures will require difficult budget choices for many states. States’ spending proposals continue to be cautious as they plan for limited revenue growth.
Recently, several articles have indicated that a number of states are facing at least some level of “budget gap” or “shortfall” for either fiscal 2015 or fiscal 2016. One of the most important things to note about state budget shortfalls – or budget gaps – is that they are based on what a state expects to receive in revenue and what the state expects to need to spend. If the money coming in is not sufficient to cover the expected costs, there is a “shortfall”.
Early indications are that most states experienced a positive “April surprise” this year, in contrast to last year. April surprises often occur in states after taxpayers pay both their federal and state taxes. Sometimes the surprise can be a positive one as states experience higher than projected tax windfalls. Other times the surprise can be negative as was the case for most states last year. The primary reason for the slowdown in 2014 was related to the federal “fiscal cliff”.
Over the course of the past several months, governors in 47 states have released a budget proposal for fiscal 2016, and in some instances fiscal 2017. Three states enacted biennium budgets last year covering both fiscal 2015 and fiscal 2016.
As of February 18th, governors in 41 states have given a State of the State address.
This report shows that state fiscal conditions are moderately improving in fiscal 2015 as the economic recovery enters its sixth year. Consistent annual growth in the economy, while not as robust as many would like, is leading most states back to budget growth. States have replenished some spending for areas cut back during the recession, such as K-12 education and higher education. In addition to bolstering state spending, economic growth has produced higher revenue collections.
While state spending on corrections has grown sharply since NASBO first published the State Expenditure Report in 1987, much of the growth was seen in the 1990’s and early 2000’s.