Slow Growth Expected for States in 2012

State fiscal conditions are likely to remain constrained in the coming year due to a weak national economic recovery and loss of federal stimulus funds, according to the latest Fiscal Survey of States. The survey points to some improvement in state finances in 2011 with 38 states reporting higher general fund spending in 2011 compared to FY10. However, 29 states still have lower general fund spending in FY12 compared to pre-recession levels in FY08 and total state revenues in 2012 remain below their 2008 levels by nearly $20.8 billion.

The survey finds some states are experiencing a slight improvement in conditions, but warns that FY12 continues to present significant financial management challenges. In FY11, revenues from all sources, which include sales, personal income, corporate and other taxes and fees, exceeded forecasts in 32 states. Earlier this year, three big states — New York, Massachusetts and Virginia — reported improved revenues following years of decline. While it may appear from the numbers that states have emerged from their fiscal crisis, the surpluses are more likely a result of spending cuts from previous years, according to the survey. A Stateline article published in August, after most states ended the current fiscal year, looked into the rising revenues more closely to discover overall tax collections in most states were not back to pre-recession levels.

State spending on Medicaid is singled out as a major financial challenge for the states. Increased demand has lead to above average growth in state general fund spending on Medicaid — a trend that is expected to continue.

Slow improvement will continue in FY12 as 43 states enacted a FY12 budget with higher general fund spending than the previous year. Looking ahead to 2012, projections include small declines in sales and corporate income tax collections, but an increase in personal income tax collections by 5.2 percent.

The biennial report is published by the National Governors Association and the National Association of State Budget Officers and is available at: http://nasbo.org/LinkClick.aspx?fileticket=y%2fqdEfOcPfs%3d&tabid=38