It’s important to stay up-to-date on the nationwide trends for revenue and state spending. These trends affect the resources available for you to do your work and the long-term financial health of your state. 2019 marks the ninth consecutive year of moderate growth in both state spending and revenue growth according to currently enacted budgets. General fund spending for 2019 grew by 5.8 percent when compared to general fund spending in 2018. This increased general fund spending is followed by a projected 4 percent growth in general fund revenues for 2020 with a 3.7 percent increase in projected general fund spending based on proposed governor budgets. Let’s examine the current and projected financial situation of states further.
Where did I get this information? For the NASPO 2019 Annual Conference, we invited representatives from the National Association of State Budget Officers (NASBO) to present on the financial health of the states. NASBO publishes a twice-yearly survey which presents the aggregate and individual data on the determinants of states’ financial circumstances such as general fund receipts, expenditures, annual tax, and revenue changes and balances. These funds are used to finance most state services and therefore have a large impact in determining what the central procurement office can accomplish. This report is incredibly comprehensive, with every executive state budget officer completing the survey. It is important to note that as of the publication of this survey, fiscal 2019 figures are preliminary and fiscal 2020 figures reflect the governors’ proposed budgets. The major takeaways include an increase in general fund spending, increased revenues, and constant “rainy-day” funds for most states.
First, let’s address changes in general fund spending by the states. These changes directly affect procurement officials as this constitutes most of the spend you have at your disposal. General fund spending increased by 5.8 percent in fiscal 2019. Revenue increases in 2019 led to 21 states increasing their fiscal budgets mid-year which led to a net mid-year increase of 5.5 billion dollars in general fund spending. There were no states who had to make mid-year budget cuts due to revenue shortfalls in 2019. However, three states did make mid-year cuts due to other reasons besides revenue shortfalls.
General Fund Growth
The trend of increased general fund spending is expected to continue in 2020 with a projected increase of 3.7 percent compared to 2019. This increase is due to states’ increasing general fund spending by 30.8 billion in programs such primary and secondary education, which accounted for 46 percent of the total proposed increases. Surprisingly, Medicare’s share of the new appropriations increases only totaled 9 percent, a relatively small amount due to a strong labor market and economy.
Despite some uncertainty, projections predict that the revenue growth experienced in 2018 appears to be continuing, although at a slower rate. The “real” increase in revenue growth, meaning that this figure takes into account inflation, in 2019 was 0.4 percent as compared to 3.6 percent in 2018. There is an expected 4 percent nominal increase in state revenues for 2020 but actual revenue is likely to be higher than this estimate.
This revenue growth has given states the opportunity to increase their “rainy-day” funds with thirty states increasing their rainy-day fund balances in fiscal 2019 and twenty-one states projecting increases in fiscal 2020. These “rainy-day” funds allow states to continue normal operations during fiscal downturns or address shortfalls in the budget. There has been a substantial increase in the rainy-day fund balance level from 2010 to 2019. During this time period, the “rainy-day” fund has grown from 1.6 percent of the general fund spending in 2010 to 7.5 percent in 2019. Rainy day fund balances are expected to remain constant, with a projected “rainy-day” fund of 7.5 percent of general fund spending for fiscal 2020. Clearly, the growth in this fund from 2010 is a positive development as it helps bolster state government funding and therefore provides more security against budget cuts. Many economists are predicting a future recession and it is clear that states are preparing for this eventuality.
This NASBO fiscal survey provides insight into state revenue collection, spending habits and projections for future growth. There is projected growth in both state spending and revenue collection across the board. Clearly, this is important information for state procurement officials when planning future purchases going into 2020. We welcome your comments about how these nationwide trends are playing out in your state.