US state spending growth to slow in 2016: Survey

U.S. states plan to slow spending growth in fiscal 2016, taking a cautious approach to forecasting and budgeting amid only modest increases in revenue, according to a survey of states published on Tuesday.

General fund spending will rise by 3.1 percent for the fiscal year beginning July 1, below the estimated 4.6 percent for the current year, according to the semi-annual survey by the National Association of State Budget Officers (NASBO).

Growth continues to be a "modest slog up the hill," compared with what the association would expect to see in an economic recovery, NASBO Executive Director Scott Pattison said in an interview.

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Overall, revenue collection is forecast to increase by 3 percent in fiscal 2016, compared with an estimated 3.7 percent gain this fiscal year. In fiscal 2014, revenue rose by just 1.6 percent as states continued to struggle to rise out of the recession.

The Casey Overpass undergoes its second day of demolition, on Tuesday, May 19, 2015.
Pat Greenhouse | The Boston Globe | Getty Images
The Casey Overpass undergoes its second day of demolition, on Tuesday, May 19, 2015.

Revenue has grown but not as fast as some costs, particularly for pensions, healthcare, and education. A backlog of much-needed infrastructure projects will also pressure budgets longer term, the report noted.

Mid-year 2015 budget cuts also exceeded those of 2014. Eleven states made a total of $2 billion of mid-year reductions this fiscal year, compared with eight states cutting $1 billion by this time in fiscal 2014.

Growth has been uneven among states. The South and West have grown, but the Northeast has lagged, in part because states in the region have not yet cleared out all of their foreclosures from the recession, Pattison said.

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Even with five straight years of growth and low inflation, states have still not caught up to their fiscal 2008 pre-recession peak in general fund spending, after accounting for inflation.

NASBO's report comes as legislators in some states haggle over the last details of their budgets for the coming fiscal year. All but four states—Texas, New York, Michigan and Alabama—begin their fiscal years on July 1.

Across the country, taxpayers could see an aggregate net increase of $3 billion in taxes and fees, with governors in 16 states mostly proposing hikes in general sales and cigarette taxes. Twelve states proposed cutting personal income taxes.

Pennsylvania's recommended $4.6 billion in increases—in part from a proposed new tax on natural gas extraction—drove the bulk of the hike, followed by Connecticut, according to NASBO.