Most states began the 2011 FY at the beginning of July in worse financial condition than they were in a year earlier. Several states have reduced construction budgets and more will be forced to make reductions. State tax receipts increased slightly in the first quarter of 2010. But this was mostly to huge tax rate increases in California and New York. Tax receipts continued to fall through March in most states. State tax receipts are expected to have risen slightly in the spring quarter with a more broad based gain. But this recent turnabout is not enough to offset the long drain on budget reserves from the recession and the resulting soaring costs for social and medical programs.
State budget reserves reached over 11% of annual expenditures before the recession but dropped to an estimated 2.2% at the end of FY ’10, excluding the huge oil tax based reserves in Alaska and Texas. Kansas and Arkansas have no budget reserves. Connecticut, New Hampshire, Washington and California have negative reserves and need to make immediate spending cuts. Seven more states have budget reserves less than 1% of annual expenditures. This includes Pennsylvania, Ohio, Michigan, Kentucky, North Carolina, South Carolina and Arizona. This is too thin a margin to avoid interim spending cuts if tax revenues fall short of the budgeted amount.
In the last fiscal year, every state except Florida, Oklahoma and Hawaii overestimated sales tax receipts. All but six states overestimated personal income tax receipts. Almost every state had to cut spending after the FY ’10 budget was approved. This year thirty seven states budgeted spending increases. Many of these states will be forced to make spending cuts after the budget year begins. This is assured by the slowdown in economic growth during the summer and the failure of Congress to provide another round of general use stimulus grants to states. Most governors included another stimulus grant from Washington in their FY ’11 budget. Spending cuts will be required by the end of summer if the full amount expected is not received.
Thirteen states budgeted FY ’11 spending cuts and may have to make additional interim cuts. This includes: Maine, New York, Michigan, Ohio, Iowa, Louisiana, Mississippi, South Carolina, New Mexico, Idaho, Wyoming, Alaska and California.
Seventeen states began the current fiscal year with budget reserves 5% or more of annual expenditures. This is a big enough cushion to maintain budgeted spending even with shortfalls in tax receipts and federal grants and extra costs for health and social programs. Several of these states have budgeted precautionary budget cuts to preserve an adequate reserve for the following year.
The states with 5% or larger budget reserves include Alaska (243.4%), North Dakota (41.4%), West Virginia (26.8%) and Texas (22.7%) at the top of the list plus Vermont, Delaware, Maryland, Indiana, Iowa, Nebraska, South Dakota, Florida, Louisiana, Mississippi, Tennessee, New Mexico and Nevada.