More than four years after the Great Recession officially ended in June 2009, states’ financial conditions are improving, but most states have not regained lost ground on some key measures of fiscal health. And recovery to prerecession levels is just one hurdle. State governments face additional difficulties that could set them back even as the economy picks up.
An examination of 50-state data by The Pew Charitable Trusts’ Fiscal 50: State Trends and Analysis, a new online resource, shows that the recovery has been fragile and varies widely from state to state. Tax revenue, employment rates, and reserve funds still are lower in a majority of states than they were before they plunged during the recession. While those measures are moving in the right direction, unavoidable pressures loom and could slow further progress.
One hurdle is the burden of unfunded pension and retiree health care costs for public workers. In 43 states, the aggregate of these long-term retirement obligations is larger than the public debt from bond issuances and other state borrowing. States also will have to adjust to belt-tightening by the federal government after a period in which federal dollars made up a bigger share of overall state revenue than at any time in at least 50 years. Federal funds have largely driven growth in total state spending over the past two decades, and especially after the recent recession.
Why does state fiscal health matter?
All of these factors affect the fiscal health of state governments, which deliver critical services such as health care for the needy, education, transportation, and public safety. State finances also matter because of their impact on the U.S. economy. State spending accounts for 4 percent of the nation’s economic output, and states provide about one-third of local governments’ budgets. Because of this crucial role, Congress and the White House rushed economic stimulus aid to state capitals after the deepest and longest recession since World War II hit the country in December 2007.
What is this new fiscal resource?
Pew’s Fiscal 50 identifies five core areas that contribute to states’ fiscal health: Revenue, Spending, Economy and People, Long-term Costs, and Fiscal Policy. Within this framework, Pew highlights trends, makes 50-state comparisons, and provides unique insights into significant fiscal, economic, and demographic indicators that influence state finances. The goal is to be selective rather than comprehensive in choosing indicators. Each indicator is designed with states’ long-term financial well-being in mind rather than the short-term perspective of what it takes to balance the budget each year.
Fiscal 50 currently focuses on six indicators and their key takeaways.
For most indicators, Fiscal 50 allows users to compare their states with others and to a national benchmark, providing insights and perhaps raising questions in state capitals about why states lead or trail their peers. This resource will be updated when new data are available, and more indicators and analysis will be added.
Fiscal 50 builds on data from the 50 states obtained from U.S. government agencies, the Nelson A. Rockefeller Institute of Government, the National Association of State Budget Officers, the National Governors Association, and Pew’s own research. Differences can be expected between certain fiscal data used in this analysis and data compiled and used by states for their own budgeting purposes. Data featured in Fiscal 50 are the best available for drawing fair comparisons across states.