State General Fund Budgets Finally Surpass Pre-Recession Levels after Adjusting for Inflation
GFOA Newsletter June 23, 2016
Most state budgets continue to grow at a moderate pace after several years of slow recovery in the national economy 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 in real terms, after adjusting for inflation. States were finally able to reach this milestone after eight years due to estimated general fund spending for fiscal 2016 growing by its highest rate since before the recession. However, progress has been uneven across states due to a combination of factors, such as population and demographic changes, regional disparities in the Great Recession’s impact and recent economic performance, the negative impact of declining oil prices on energy-producing states, and differing fiscal policies. Though aggregate, 50-state, general fund expenditures and revenues have reached their pre-recession peak levels, after adjusting for inflation, 29 states fiscal 2016 general fund expenditures remain below fiscal 2008 figures and 23 states report general fund revenues lower than their fiscal 2008 levels. While state fiscal conditions have largely stabilized in recent years, long-term spending pressures in areas such as health care, education, pensions and infrastructure continue to pose challenges for many states that will require difficult budgetary decisions. With slower revenue growth expected to continue in the upcoming fiscal year, governors’ proposed budgets for fiscal 2017 are cautious, recommending modest spending increases for core government services.