State Spending Could Surge at One of Fastest Paces in a Decade

Governors across the U.S. are pushing for one of the biggest upticks in spending in the last decade as states emerge from Covid-19 with better than expected revenue and infusions of federal stimulus cash.

Total general fund spending proposals rose 5% to $963.6 billion in fiscal year 2022, compared to spending estimates from the year prior. Overall, 39 states are forecasting spending increases, according to a report published Thursday by the National Association of State Budget Officers.

The surge reflects an increase in one-time expenditures on items such as state-funded stimulus checks and capital projects, and it shows how depressed spending levels were fiscal 2021. Even though the majority of governors submitted budget proposals in late fall or winter, before the American Rescue Plan was enacted and when infection rates were soaring, the data show a sense of cautious optimism in statehouses as economies stabilize.

State Spending Could Surge at One of Fastest Paces in a Decade

​“There is still some uncertainty about how long it will take some of those harder hit states and cities to fully recover from the pandemic” said Kathryn White, director of budget process studies for NASBO and author of the report. “But in the main, there is a sense of optimism that states are in a good position to foster a recovery.”

State economies were hit unevenly and variation was wide, with particular economic damage wrought on those with strong tourism, leisure and power sectors.

Hawaii, Alaska and Nevada saw general fund spending shrink in proposals. Other governors asked for spending increases in the double digits, such as those in Delaware, New York, and North Carolina.

General fund revenue are expected to increase 2.3%, driven by moderate growth in sales taxes and personal income taxes, the report said. Adjusting for shifts in tax filing deadlines would bring the growth rate to 3.4%.

The proposals are still subject to passage in state legislatures before they become law, meaning they are still subject to change. In addition, there is a lag associated with the data, which was collected through surveys conducted between March and May 2021, and budget proposals mostly submitted in the winter.

That means most governors didn’t factor in stimulus from the American Rescue Plan Act. A key provision of that round of stimulus was direct relief to states and cities, so it still may be too early to tell exactly what impact it had.

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