Most States’ Spending Is Below Pre-Recession Levels

The state budget picture has been slowly improving in the wake of the national recession. Even so, general fund spending in 29 states is at a lower level now than it was when the economic downturn hit in late 2007, according to a new survey by the National Governors Association and the National Association of State Budget Officers.

Despite improving tax collections across much of the country, states still face “a big squeeze” as they try to recover from the recession, according to the survey , which was released Tuesday (November 29). The analysis finds what many other reports about state finances have also found: that weak tax collections, the end of federal stimulus dollars and rising demand for state services, led by Medicaid, have combined to leave states in a difficult fiscal position.

The failure of the congressional “Super Committee” to reach a federal spending agreement, as Stateline noted last week , presents an additional threat to state budgets.

Some of the report’s findings may come as a surprise. Total state revenues for the current fiscal year are nearly $21 billion below those reported for fiscal 2008, when the recession hit. But it wasn’t just the poor economy that resulted in smaller tax collections: According to NGA and NASBO, state taxes and fees went down by $584 million this year.

“Two years after very significant tax increases at the state level, this report shows the first actual decrease since 2007, and part of this is due to factors like the expiration of sales taxes in certain states,” NASBO Executive Director Scott Pattison tells Politico . “The findings do demonstrate the political will to increase taxes was lacking in 2011 and this is expected to be more pronounced in election year 2012.”

Overall, 43 states are spending more out of their general funds than they did last year, the report finds. But Pattison and Dan Crippen, executive director of the NGA, are quick to note that, before this year, general-fund spending declined in back-to-back years for the first time on record. Most states have a long way to go before they return to pre-recession spending levels.