States Predicting Only Slight Improvement in 2011 Fiscal Conditions

Although fiscal year 2011 will present a slight improvement in state fiscal conditions, spending and revenue is unlikely to return to pre-recession levels for several years, according to the Fall 2010 Fiscal Survey of States. The loss of federal stimulus funds in 2012 will compound the problem and is anticipated to create significant gaps between current spending levels and total available funds in many states. Based on enacted budgets for FY11, states are projecting a 5 percent increase in sales, personal income and corporate tax collection relative to FY10 — a silver lining in the report. However, those three revenue streams, which account for about 80 percent of general fund revenue, all declined in 2009 and 2010 leaving large gaps in state budgets.

State budget officers are projecting a grim outlook for fiscal conditions through FY13. Eleven states are reporting nearly $10 billion in budget gaps that must be closed by the end of FY11, which is June 30 for most states. Twenty-three states are reporting $40.5 billion in budget gaps for FY12 and 17 states are reporting a combined $40.9 billion in budget gaps for FY13. To help close the deficits, 39 states made $18.3 billion in mid-year budget cuts to their FY10 budgets and 14 states already have made $4 billion in cuts to their FY11 enacted budget. Most states enacted targeted cuts and across-the-board agency cuts to reduce or eliminate budget gaps in FY10 and FY11. Only a few states expanded lottery or gaming and gambling to fill budget deficits.

In addition to cuts, states enacted $23.9 billion in increased taxes and fees with an additional $7.5 billion in revenue measures in FY10. State balances also are at near historic lows for many states with total balances declining to $39.2 billion or 6.4 percent of expenditures in FY10 compared to $69 billion or 11.5 percent of expenditures in FY06. Nineteen states have balance levels under $7 million.

State general fund spending remains nearly $42 billion or 6.2 percent below the FY08 level, the report finds, and the FY10 general fund spending decline of 7.3 percent is the largest decline in state spending in the history of the report, which began publishing in 1979.

Data from the Fiscal Survey of States reflects actual fiscal 2009, preliminary actual fiscal 2010, and enacted 2011 figures. The biennial report is published by the National Governors Association and the National Association of State Budget Officers and is available at: http://www.nasbo.org/LinkClick.aspx?fileticket=C6q1M3kxaEY%3d&tabid=38.