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Annual Privatization Report 2013

State Budget Update

Subsection of Annual Privatization Report 2013: State Government Privatization

Leonard Gilroy
April 22, 2013

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State government finances continued to improve in 2012, stabilizing further amid a slow recovery from the 2008 recession that dampened tax receipts and threw many state budgets out of balance. Aggregate budget deficits were at their lowest levels since 2009, and overall state revenues are projected to exceed their 2008 levels for the first time since the recession began, in nominal terms. However, the state economic recovery remains uneven, and states are facing ongoing fiscal pressures that include rising Medicaid and public employee pension and healthcare costs, federal fiscal and debt reduction policies that could reduce outlays to states, and political pressures to increase spending on education and other local priorities.

The National Governors Association (NGA) and the National Association of State Budget Officers (NASBO) issued their biannual state fiscal survey in December 2012, noting improving state fiscal conditions relative to those experienced in 2009 and 2010 in the wake of the recession.1 Among the findings in the NGA/NASBO survey:

Looking ahead, the report suggests that despite improving fiscal conditions, "states are still faced with recession-induced challenges and looming long-term issues that will continue to have implications for operating budgets."2

The National Conference of State Legislatures’ (NCSL) State Budget Update: Fall 2012—part of an ongoing reporting series that surveys legislative fiscal directors on their states’ fiscal situations—struck a similar tone, finding that state budgets are continuing their slow recovery and reporting that most legislative fiscal officers describe their state’s finances as "stable."3 While state revenues are projected to increase in FY 2013 to peak or near-peak levels in many states, the NCSL report suggests that the overall state recovery has been uneven and that states continue to face significant challenges—including federal deficit reduction actions, increasing pressures on state program funding, international debt crises, and the impact from recent storms—with "enough uncertainty [lingering] on the horizon to create a fragile situation for state budgets."4 Additional findings from the NCSL report include:

Neither the NGA/NASBO nor NCSL reports quantified actual or projected state budget deficits for FY 2013, but according to data compiled by the Center on Budget and Policy Priorities (see Figure 1), a total of 31 states closed $55 billion in budget deficits for FY 2013, a significant sum but one that is down significantly relative to deficits closed in the last several years (totaling $548 billion in aggregate between FY 2009 and FY 2012).5

Figure 1: Aggregate State Budget Deficits, FY2009-2013

Lastly, the State Budget Crisis Task Force, created by former New York Lieutenant Governor Richard Ravitch and former Federal Reserve Board Chairman Paul Volcker to assess the long-term fiscal sustainability of the states and the persistent structural imbalance in state budgets, issued a report in July 2012 identifying six major fiscal threats states continue to face in the coming years:6

Overall, states are slowly recovering from the impact of the 2008 recession, but with the "new normal" of slow economic growth and a variety of looming fiscal threats, the states' fiscal situation might best be described as precarious in the near term.

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Endnotes

1 National Governors Association and National Association of State Budget Officers, The Fiscal Survey of the States, Fall 2012, December 2012, http://goo.gl/Mf1iA (accessed January 15, 2013).

2 Ibid, p. vii.

3 National Conference of State Legislatures, State Budget Update: Fall 2012, December 2012, p. 1.

4 Ibid.

5 Phil Oliff, Chris Mai and Vincent Palacios, “States Continue to Feel Recession’s Impact,” Center on Budget and Policy Priorities, June 27, 2012, http://goo.gl/v5LgF (accessed January 15, 2013).

6 State Budget Crisis Task Force, Report of the State Budget Crisis Task Force, July 2012, http://goo.gl/aUKlv (accessed January 15, 2013).


Leonard Gilroy is Director of Government Reform


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