Most state budgets continue to grow at a moderate pace after several years of slow recovery following the Great Recession. For the first time, estimated state general fund spending and revenues in fiscal 2016 surpassed their fiscal 2008, pre-recession peak levels after adjusting for inflation. However, the progress has been uneven across states and long-term spending pressures remain in areas such as health care, education, pensions, and infrastructure.
So far in 2016, line-item vetoes issued by 19 governors’ range from major public policy questions embedded in appropriation bills to large fiscal impacts to vetoes that touch on a state’s budget process. One example of a public policy related veto was Arkansas Governor Hutchinson’s line-item veto of the sunset clause for the Arkansas Works program (that state’s version of Medicaid expansion). In Alaska, Governor Bill Walker used his line-item veto power to reduce $1.3 billion in appropriations, including capping state residents' dividend from the Permanent Fund at $1,000 per person.
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.