Saturday, July 22, 2017

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State Revenue Uncertainty

Yesterday the National Conference of State Legislatures released its State Budget Update for 2012, projecting that states’ revenues are approaching levels not seen since before the recession. This means that the budget deficits that have been common in most states over the past few years will hopefully be rare this fiscal year. As Reuters reports:

The situation is now turning around. Only California and the state of Washington currently are projecting deficits for fiscal 2012, according to NCSL. At the same time, resource-rich states like Alaska, Wyoming and North Dakota expect big balances for fiscal 2012, which ended on June 30 for most states.

For fiscal 2013, none of the states are projecting deficits, with 10 states and Washington, D.C., eyeing balances equal to 10 percent or more of general fund spending, the NCSL reported. However, year-end balances of just 0.1 percent to 4.9 percent are projected in nearly a quarter of the states.

Not everyone is as optimistic about state budgets in the coming year. This new report contrasts sharply with a study from the Center on Budget and Policy Priorities, which earlier this summer found that 31 states faced budget gaps in 2012, and that states face a combined $55 billion shortfall for 2013. However, if the NCSL findings are correct, this is very good news for states that have had to resort to midyear cuts and tax increases to balance budgets in the post-recession years.

If states can more easily meet their constitutionally required balanced budgets this year, policymakers should take this opportunity to look at their long-run debt challenges. As I wrote in a USA Today op ed last week, state debt levels are headed to levels that will threaten economic growth. Mounting interest costs will also mean that tax dollars increasingly go to pay for past services, rather than current services.

Whether or not states are in a better position for avoiding deficits in the current year, they need to address their debt levels for long run economic growth. Outspending current revenues is a constant temptation for elected officials who want to stay in office through public support of state programs. However, voters should demand responsible fiscal policy to address debt problems now, before this becomes even more difficult to do down the road.