We've got some good news …
Last month (“State tax revenues up, local down,” December 2011, page 16), we reported that state tax revenues grew by 8.4% in 2011, marking the strongest annual gains since 2005. Although lower than four years ago, the increase indicates states are beginning to recover from one of the worst economic periods since the Great Depression.
According to the National Governors Association and the National Association of State Budget Officers (NASBO)'s Fall 2011 Fiscal Survey of States, rising tax collections have driven 2.9% growth in planned expenditures. Forty-three states enacted 2012 budgets with higher general fund spending than in 2011 — calling for $667 billion as compared to last year's $648 billion.
Though $20 billion less than pre-recession spending, that's the second annual increase since the declines of 2009 and 2010.
Midyear budget adjustments are another indication of fiscal health (or, more accurately, illness). Last year, only 19 states cut expenditures — significantly fewer than in 2010 (39 states) and 2009 (43).
Transportation spending drew the smallest number of cuts.And some bad news …
At the local level, however, the picture's heading in the opposite direction as lower property values and declining sales take their toll. Last year marked the fifth consecutive year of revenue declines.
Released in September 2011, the National League of Cities' City Fiscal Conditions projected a 2.3% revenue decrease by the end of the year that will continue to decline in 2012. Income tax receipts are decreasing by 1.6%, and property tax collections are expected to decline through at least 2013.
The biggest hit state and local budgets will take this year is the wind down of stimulus funding (see chart on page 46). In 2010, funding to states and localities totaled $112 billion, dropped to $66 billion in 2011, and will decline to $23 billion in 2012.
Not surprisingly, at least 26 states are still reducing aid to localities to balance budgets. Since 2009, municipal financial officers report, states have made cuts in general aid, shared revenues, reimbursements and other transfers, and funding of state-mandated services.
State spending on Medicaid is expected to take a bigger bite out of budgets and outpace revenue growth as provisions of the Affordable Care Act go into effect. So if you're expecting funds to trickle down to your agency from your state's increased tax revenues, you'll most likely be kept waiting.