State finances show improvement
Editor’s note: The following is the second of a six-part series on government budgets and government spending that comprise the Keating Report mid-year 2012 forecast. The topics we are covering include: federal fiscal trends, state finances, local government fiscal realities, public works and transportation construction, public-private partnerships and economy and government purchases.
Finally, there is some good news for state governments, says Sujit CanagaRetna, senior fiscal analyst for the Atlanta-based southern office of the Council of State Governments. “State tax revenues continued expanding, and in the final quarter of 2011, states recorded their eighth consecutive quarter of growth,” CanagaRetna told GPN. “In fact, in the fourth quarter of 2011, overall state tax collections finally eclipsed levels reached in the final quarters of 2007 and 2008, a stark reminder of the harshness of the Great Recession.”
New strength in manufacturing should keep the momentum going, CanagaRetna says. “In April, U.S. manufacturing grew at its fastest clip in 10 months with new orders, production and hiring all rising,” he says. “Contributing to this resurgence in U.S. manufacturing are companies like Boeing (it rolled out its new South Carolina-built 787 Dreamliner passenger jet in April), Chrysler (demand for the Jeep Grand Cherokee was so strong that in late April the company announced adding 1,100 jobs in Detroit), Phoenix Solar and Silicon Ranch Corp. (two solar companies that will provide 12.5 percent of the energy needs of the 2-million-square-foot Volkswagen manufacturing plant in Chattanooga, Tenn.).”
In spite of those 2012 business expansions that could generate fiscal benefits to state and local governments, CanagaRetna sees a number of potential dark clouds that could derail the national and state economic recoveries. Higher state expenditures just around the corner could have a negative effect on state finances, he says. Some of the problematic expenditure categories include increased Medicaid costs, higher pension costs as many state workers retire and costly infrastructure repairs that have been delayed.
State finances have not yet fully recovered, says Elizabeth McNichol, a senior fellow at the Washington-based Center on Budget and Policy Priorities. “As of the end of 2011, state revenues remained 7 percent below pre-recession levels after adjusting for inflation, and are not growing fast enough to recover fully soon,” she says.
Yes, the revenue outlook is trending upward, but it may not be enough, McNichol says. “States [have] faced or are facing large budget shortfalls by historical standards as they consider budgets for the upcoming year,” she says. “Extremely large shortfalls addressed in recent years have led to deep cuts in critical public services like education, health care and human services. The new shortfalls likely will prompt legislators to make further cuts in those areas on top of those already enacted.”
View additional installments of our second-half 2012 forecast as well as the January 2012 forecast.
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- State government budgets still challenging
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- Government revenues higher in latest quarter
- 2012 Keating Report on government budgets and spending
- Keating Report on government budgets and spending, 2nd half 2011
- 2011 Keating Report on government budgets and spending
