State budgets have largely recovered from the revenue losses caused by the COVID-19 pandemic, according to
Overall spending by the states is on track to grow 3% for the 2021 fiscal year that ends June 30 for 46 of the 50 states, but that’s 2 percentage points lower than had been expected prior to the pandemic.
Fiscal 2022 budgets proposed by the governors are calling for a collective 5% increase in general fund spending totaling $963.6 billion. The survey found the median growth rate is 3.2%, but the proposals vary considerably because of the uneven impact of COVID-19 on state economies and budgets.
“States have seen large swings in their revenue forecasts over the past year, as it was so difficult to predict the impacts and trajectory of this unprecedented crisis,” NASBO President Kate Nass, Oregon’s deputy chief financial officer, said in a press statement.
One big area of spending growth has been Medicaid health services for the poor, which is on track to jump by 12.5% in the current fiscal year.
On Monday the federal Centers for Medicare & Medicaid Services announced that enrollment in Medicaid and the Children’s Health Insurance Program (CHIP) rose by nearly 9.9 million, a 13.9% increase, between February 2020, the month before the public health emergency was declared, and January 2021.
A record 80.5 million American were enrolled in the two programs at the end of January.
The impact of that enrollment increase on state budgets has been minimized by an enhanced Federal Medical Assistance Percentage, or FMAP. Last year’s CARES Act gave states a 6.2% FMAP increase for however long the ongoing health emergency continues.
States qualify for the enhanced FMAP funding by adhering to a federal maintenance of effort requirement that eligible people enrolled in Medicaid stay enrolled and benefits are not reduced during the public health emergency.
Medicaid is the largest category in state budgets and the second largest general fund category, according to NASBO.
States overall are expecting Medicaid enrollment to continue growing in fiscal 2022 while the public health emergency also will end at some point in the coming fiscal year, forcing them to increase their state share of the cost.
What’s unknown is when Medicaid enrollment might start to decline as the economy continues to improve and more people are hired in jobs that provide private health insurance.
The Spring Fiscal Survey of the States conducted between March and May found that 39 states are forecasting nominal spending increases in fiscal 2022.
“As we monitor more recent data, the overall state fiscal position continues to improve, and is likely stronger now than the data in this report portrays, especially since governors’ budgets mostly predate the passage of the American Rescue Plan Act in March 2021,” said Shelby Kerns, executive director of NASBO.
“The headline here is that the impact of the pandemic on state budgets has not been as severe as was anticipated earlier in the crisis,” said Kathryn Vesey White, director of budget process studies for NASBO and the principal author of the report. “But spending and revenue levels remain below their pre-pandemic projections.”
Overall state tax revenues were stronger during the pandemic than initially feared in large part because of the generous federal stimulus aid they have received.
The job losses caused by the economic slowdown also were not as great among high income workers who pay the most taxes because most were able to work remotely.
Last year’s delay in the tax filing deadline to July also shifted some tax revenue that would have been received in fiscal 2020 into fiscal 2021.
“A very uneven impact and recovery across the states” was how Lucy Dadyan, a senior research associate for the State and Local Finance Initiative of the Urban Institute, summarized the findings of the report.
Dadyan’s own work at the Urban Institute has found that states that rely on the tourism and hospitality industries for their tax revenues as well as those dependent on the oil and gas industry were hurt the most negatively.
Twelve states enacted mid-year budget cuts totaling $4.1 billion.
Among the largest were $653 million in Washington, $558.6 million in New Mexico, $540.8 million in Nevada, $447.8 million in Maryland, $437.3 million in Kansas, and $390 million in Ohio.
Connecticut, Hawaii, Indiana, Maine, New Jersey and Utah also enacted mid-year budget cuts.
