State governments move from coronavirus recession to passing record budgets

Just a year ago, the financial future looked grim for state governments as governors and lawmakers scrambled to cut spending amid the coronavirus recession that was set to bring down revenues.

They State employees made redundant, threatened major cuts to schools and warned against canceling or reducing construction projects, among other measures.

Today, many of those same states are overflowing with cash, and lawmakers are passing budgets with record spending. Money flows into schools, social programs and infrastructure. At the same time, many states are saving billions of dollars.

“It is certainly safe to say that states are in a much better fiscal position than they expected,” said Erica MacKellar, budget analyst at the National Conference of State Legislatures.

Spending plans for the fiscal year that begins July 1 are up 10% or more in states ranging from Florida and Maryland to Colorado, Utah and Washington.

In Oklahoma, pandemic uncertainties last year urged lawmakers to cut $ 1.3 billion from their planned general revenues. This has resulted in general cuts in public education and most public services.

This year, the new budget is up almost 18%. This includes money to reduce class sizes in kindergarten and first grade, funding for a new children’s behavioral health center, and new incentives for companies to make films in Oklahoma. The Republican-led legislature even set aside money to cut personal and corporate tax rates and expand tax credits for a school choice program.

“Last year: fragile foundation. This year: a solid foundation, ”said Republican State Senator Roger Thompson, chairman of the chamber’s budget drafting committee.

Many states have experienced a similar turnaround. Tax analysts cite various reasons.

The federal government has poured billions of dollars into state coffers through a series of pandemic relief programs. Federal aid has also sent billions more to American households and businesses which, in turn, have pumped money into the economy.

State finances have also held up better than feared. Consumer spending rebounded to shore up sales tax revenue, and state income taxes were supported by a strong stock market and well-paid employees who continued to work remotely while on duty. others were made redundant.

The result is that states now face “very promising fiscal and economic prospects over the next two years,” said Justin Theal, head of tax research at The Pew Charitable Trusts.

A recent Pew report found that after a first sudden drop in tax revenue, 29 states recovered to absorb as much or more during the peak period of the pandemic from March 2020 to February 2021 than they did during the same 12 months before the start of the pandemic.

Idaho, Utah, Colorado and South Carolina saw some of the biggest income gains with South Dakota being one of the few states that never closed. The Pew Report also noted modest income gains for some states that have imposed more aggressive coronavirus precautions on their economies, including California, Massachusetts and New York.

The $ 212 billion budget adopted earlier this year in New York is up nearly 10% from the previous one. Federal COVID-19 relief provided most of this growth. But state spending alone is still up 3.8% in the new budget, according to the administration of Democratic Governor Andrew Cuomo.

Biggest budget in New York includes a mix of ongoing and one-time spending, including a $ 1.4 billion increase in core support to schools and a $ 1.3 billion plan for the Penn Station overhaul.

The Florida Record Budget of $ 101.5 billion is up about 11%, with bonuses for teachers, police and firefighters, and new construction projects at schools and colleges. Lawmakers have decided they have money to spare, expanding sales tax relief for school supplies and hurricane events and creating a new tax-free week to purchase museum and concert tickets and recreational equipment for camping, fishing and surfing.

Florida is among several states that have boosted their 2021-2022 budgets with at least part of their share of $ 195 billion state aid package of the recent American Rescue Plan Act signed by President Joe Biden.

Shortly after the plan was adopted, Moody’s Investors Service raised the outlook for states from negative to stable, citing stronger public finances and continued federal aid. He said the new federal aid was equivalent to nearly 16% of states’ own revenue for fiscal 2019.

Some states, like Colorado, are waiting until later to decide how to use the remaining COVID-19 relief funds, as they have until the end of 2024 to spend them.

Even without the latest federal aid, Colorado’s budget for the fiscal year beginning July 1 is up more than 12% from the previous one, which was slashed due to pandemic concerns.

Senator Bob Rankin, a Republican member of the Legislative Assembly’s Joint Budget Committee, has expressed concern about how this additional $ 3.8 billion in federal aid will be spent.

“I’m concerned that we are spending money and making commitments that we cannot keep once this one-time federal money is gone,” Rankin said.

In many states, lawmakers are spending federal COVID-19 relief money for one-time purposes, such as additional worker assistance, expanded high-speed internet access, or a depleted replenishment. unemployment trust fund.

Missouri is among the states that have yet to decide what to do with the latest federal aid. The general revenue portion of its budget rebounded after a reduction in fiscal year 2021 to exceed pre-pandemic levels. And Missouri is on track to breaking a 1998 record for its biggest year-end cash balance.

“Income has been much better than I ever imagined during a pandemic,” said state budget manager Dan Haug.

He said he believed Missouri could have weathered the pandemic without this year’s Biden relief program.

Maryland lawmakers used words like “Impressive” and “unique” to describe how federal aid has helped reshape their budgets. The state’s record $ 52.4 billion new fiscal year budget provides bonuses to state employees, increases payments to the poor, builds parks and playgrounds in every county, and still reserves about 2 billions of dollars in savings.

“After spending most of the last year spending sleepless nights trying to figure out what the world was going to do, being in this position was pretty amazing,” Democratic State Senator Guy Guzzone said, President of the Senate. Budget and Taxation Committee.

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