“State finances across the U.S. have been described as stable but slow growing. Six years into the post-recession economic recovery, that statement may be accurate, but the full truth may be more troubling.
A handful of states are caught in a real pension fix. A few statehouse budget battles in recent months have been notable for their heightened drama—Kansas, where huge tax cuts backfired on Gov. Sam Brownback; and Louisiana, where a member of Gov. Bobby Jindal’s own party referred to his budget plan as “money laundering.”
But it’s not the extremes that have state budget experts concerned. More states have been unable to complete budgets so far this year than is typical, and the situation points to long-term spending problems—from K–12 education to Medicaid and infrastructure—that will persist.
“The picture is more gloomy than stable, and state fiscal conditions might be better described as stagnant,” said Lucy Dadayan, senior policy analyst at the Nelson A. Rockefeller Institute of Government.
“I am a glasses-half-full kind of guy,” said Scott Pattison, the executive director of the National Association of State Budget Officers (NASBO) and a former Virginia budget officer. “But on the downside … a lot of states need to think more seriously about building reserves. We don’t know when the next downturn will be.”
Overall, state reserve funds are at 7 percent of spending, but Pattison noted that if Texas’ outsize reserve is excluded, then the average comes to 5 percent, and there are 15 states with less than 5 percent in reserve funds for fiscal 2016. That’s a figure that has declined for four consecutive years, from 10.4 percent of spending in 2012 to 7.1 percent projected by NASBO in fiscal 2016.
The number of states with 5 percent or less in reserve has reached 19—the highest level in the past three years—while the number of states with 10 percent or more in reserve funds has decreased from 18 states in 2014 to 13 states in the next fiscal year. Year-end balances for states as a percentage of spending are at their lowest level since the recession.
In late April, Standard & Poor’s released a report noting that six years into an economic expansion, more than 30 states face a budget shortfall in fiscal 2015 or 2016 (or both). S&P said there’s no immediate threat to credit quality, but “the fact that so many states confront shortfalls at all serves as an early warning of sorts.”
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