Keating Report: 2015 forecast on government budgets and spending (with related video)—Part 2

State fiscal conditions are improving. “The majority of states have enacted budgets with general fund spending increases for fiscal 2015,” says Brian Sigritz, who is the Director of State Fiscal Studies for the National Association of State Budget Officers (NASBO) in Washington, D.C. NASBO’s latest “Fiscal Survey of States” reported that general fund spending in the states is expected to increase 2.9 percent, the fifth consecutive year of spending growth following two straight years of decline.

State spending, says Sigritz, is increasing in several areas. He says the majority of states have enacted fiscal 2015 budgets with general fund spending increases. He adds that states have approved additional support for education through changes to school finance formulas, increased aid for early education, by linking higher education funding to performance measures, and new efforts and programs linking education to economic development.

Sigritz notes that a number of states have added funding for home and community based health care, mental health services, and programs to expand health care coverage to a larger percentage of the population.

More than a few states, says Sigritz, have adopted budgets that boost corrections and prisons spending. Infrastructure spending, he adds, is on the rise in some states.

One dark cloud is slow wage growth, says Michael Streepey, who is a NASBO senior budget and policy analyst. “Wages haven’t increased as rapidly as stock prices since the economic recovery has solidified. And wages haven’t kept pace with inflation either, leaving many households feeling worse off than they were prior to the recession. Over the past year, real wages have fallen in 26 states.”

Streepey says that the continuing trend of slow wage growth may place pressure on state budgets that get a lot of revenue from personal income taxes. He says that minimal wage expansion may also affect state governments that rely heavily on sales taxes for revenue.

There’s good economic news out there, says Sujit CanagaRetna, fiscal policy manager at the Atlanta-based Council of State Governments’ Southern Office, the Southern Legislative Conference. Some of the good news he explains: “Long-term interest rates continue to fall, prices for oil and essential commodities plummet, inflation is expected to be low and economic growth is expanding at a steady clip.” He adds: “Business surveys and other real-time indicators of the economy point to steady expansion.”

But, explains CanagaRetna, “Tax revenues in nearly 30 states have not recovered fully from the depths to which they plunged to during the Great Recession.” He notes: “States such as Alaska, New Mexico and Wyoming experienced the most difficulties with their tax collections in the second quarter of 2014.” Add in uncertainty about the global economy, says CanagaRetna, and he finds that “the economic picture for 2015 is murky to say the least.”

Some governors are highlighting their states’ budget surpluses in 2015 state-of-the-state addresses. In his “2015 Condition of the State Address,” Iowa Gov. Terry E. Branstad (photo below on left) boasted: “Our work has put us on a bright, sustainable path. Our budget is balanced, our state maintains a budget surplus, our economic emergency accounts are fully funded and our unemployment rate is the tenth lowest in the nation.”

The Hawkeye State’s current budget fits within standard five-year budget projections. The current budget fully funds the state’s property tax reform and education reform commitments. In Iowa, general fund appropriations reached $6.49 billion in fiscal year (FY) 2014. In FY 2015 those appropriations are expected to reach $6.98 billion.

With 2015 underway, a number of states have enacted or are considering boosting gasoline taxes to pay for needed road repairs. Gasoline prices have fallen more than 40 percent since the end of June thanks to the toppling of global oil prices. A total of five states, including Virginia and Maryland, increased overall gas taxes starting Jan. 1. Also on Jan. 1, North Carolina drivers started paying an additional penny tax on every gallon of gas. Drivers on the state’s only toll road started paying a bit more, too.

Lawmakers in Michigan have put a gas tax increase on the ballot for a May election, and Iowa lawmakers are also considering action to increase the state’s gas tax. Yes, state fiscal conditions are getting better, but budget monitors continue to look for ways to shore up state government revenue.

Another section of the 2015 Keating Report, covering government and public works construction, will be available online soon at this site.

Michael Keating is senior editor for American City & County and the GPN web site. Contact: michael.keating@penton.com

In the video, an Iowa media panel discusses Gov. Terry E. Branstad’s Condition of the State 2015 address.

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