State fiscal reports not a pretty picture

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WASHINGTON — Most states experienced poor fiscal conditions in 2008, with conditions for fiscal 2009 continuing to deteriorate and expected to continue to severely decline as the national recession deepens.

According to the National Governors Association and the National Association of State Budget Officers , spending will decline this fiscal year for the first time since 1983.

In a report released Dec. 15, The Fiscal Survey of States, the associations found state spending is expected to decrease by .1 percent for fiscal 2009, and states expect to make significant budget cuts in the coming fiscal years.

No state is immune

Fiscal conditions varied across states, with some states benefiting more than others from this summer’s run-up in energy and commodity prices while others were significantly more exposed to the economic downturn sparked by the housing crisis.

Unfortunately, virtually all states are now in recession or at risk, and states expect continued expenditure pressures from a variety of sources, including Medicaid, employee pensions and infrastructure.

Grim outlook

In addition, because states historically have continued to feel the impact of national economic downturns even after recovery begins, states could face even more difficult financial conditions in fiscal 2010 and beyond.

In fiscal 2008, state general fund spending growth was 5.3 percent — lower than the 31-year state spending average of 6.3 percent. Six states reported negative budget growth for 2008, and 18 states enacted negative growth budgets for fiscal 2009.

State revenue collections were up 2.2 percent in 2008, and 25 states exceeded their original revenue projections; five states met their projections; and 20 states were below projections.

Tax revenues fall

“The housing market decline continued to negatively affect state revenues, particularly corporate and sales tax revenues,” said National Governors Association Executive Director Raymond C. Scheppach.

“Given the continued stall in credit availability, rising unemployment rates and increasing demand for state services such as Medicaid and welfare as people lose their jobs, the fiscal outlook for states is likely to get worse.”

Year-end picture

Total year-end balances — ending balances and the amounts in budget stabilization funds — are a critical tool states use to balance their budgets during downturns. For fiscal 2009, however, the report shows an expected decline.

Total balances in fiscal 2007 were $65.9 billion — a healthy 10.1 percent of expenditures; in fiscal 2008 total balances were $50.8 billion — or 7.4 percent of expenditures. In fiscal 2009, balances are projected to decline to $48 billion — or 7 percent of expenditures.

However, if the balances of oil rich states Alaska and Texas are removed from the total, the figure is closer to 4 percent and expected to decline further in early 2009 as states use up their reserves.

This edition of The Fiscal Survey of States reflects actual fiscal 2007, preliminary actual fiscal 2008 and appropriated fiscal 2008 figures. The data were collected during fall 2008.

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