States Adjust to Life After Federal Stimulus Aid

State governments began to wean themselves in fiscal year 2012 from the record-high federal assistance that followed the Great Recession. As federal stimulus aid declined, overall state spending fell with it. But total 50-state spending was still relatively high as a share of the economy, when compared with the past 20 years.

States spent $1.65 trillion in combined state and federal funds in fiscal 2012, about $9 billion less than the previous year. This was the first year-over-year decline in at least 50 years. Total spending fell because states did not fully make up for the sharp drop in federal aid, even though an improving economy gave them more of their own revenue to spend.

Still, when measured as a share of the economy, total state spending in fiscal 2012 was higher than in 10 of the 20 years since fiscal 1993, even with the drop in federal funds. Examining changes in expenditures in relation to growth or shrinkage in a state’s economy puts spending into context and enables comparisons of spending levels across multiple years.

Total state spending in fiscal 2012 was 12.3 percent of state personal income—a measure of a state’s economy that captures what residents earned from wages, investments, and other sources. That was down from 12.9 percent in fiscal 2011 but 0.4 percentage points higher than the 11.9 percent in fiscal 1993.

And federal dollars still were a bigger share of states’ spending in fiscal 2012 than they had been for much of the previous two decades. As a share of the economy, 50-state spending from federal dollars was 0.5 percentage points higher in fiscal 2012 than in fiscal 1993, but spending from states’ own sources was 0.1 percentage point lower

When total spending is measured as a share of its economy, South Dakota spent less in fiscal 2012 than at any time since 1974, and Alaska spent at its lowest level since 1979.

Results varied by state. Compared with fiscal 1993, total spending as a share of the economy in fiscal 2012 was higher in 29 states, lower in 20, and the same in one—Colorado.

In fiscal 2012, based on total spending as a share of the economy:

  • South Dakota spent less than at any time since 1974, and Alaska spent at its lowest level since 1979. Florida and Nebraska spent less than at any time since 1990.
  • North Dakota, where the economy was expanding rapidly as the result of an oil boom, spent less overall than in fiscal 1993. But spending from state funds alone was at its highest as a share of the economy in at least 20 years.
  • Vermont had the greatest increase (4.8 percentage points) compared with its spending level 20 years ago, followed by Delaware (3.8 points) and Mississippi (3.6 points).
  • Alaska had the greatest decline (-5.6 percentage points) compared with 20 years ago, followed by South Dakota (-1.8 points) and Washington (-1.7 points).

The broad measure of state spending used here captures far more than general fund budgets. State-sourced spending includes all expenditures approved by legislatures, including the annual costs of multiyear commitments and spending by related units of state government. The measure also includes spending of federal revenue, over which state policymakers may have less control. Because the change in state spending indicator reflects both spending and economic performance, changes in either factor affect the ratio. For example, an increase could mean that spending rose faster than personal income or that spending was stable and the economy faltered. Similarly, a decrease could mean that spending fell while the economy increased or held steady or that the economy grew faster than spending.

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Analysis by Barb Rosewicz and Sarah Babbage

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Sarah Leiseca

Officer, Communications