Pew’s Fiscal 50: State Trends and Analysis presents 50-state data on key fiscal, economic, and demographic indicators and analyzes their impact on states’ long-term fiscal health.
States have regained much of the fiscal and economic ground they lost in the Great Recession, but not all have fully rebounded, despite nine years of recovery. Some states are in a stronger position than others as they try to gauge how long the economic recovery will last and how federal tax reform and trade policies are affecting their finances.
After years of slow revenue growth, an unexpected surge in tax receipts provided modest budget relief for many states this year—though at least some of the gains may only be temporary. Tax collections in 34 states—the most yet—had surpassed their recession-era peaks by the start of 2018, after adjusting for inflation. The extra revenue led a number of states to add to their rainy day funds, which could cover a bigger share of spending than before the recession in at least 26 states.
Economically, employment rates and growth are on the upswing. Still, the estimated share of prime working-age adults with jobs is lower than before the recession in most states, and growth measured by state personal income still lags historic norms.
Decade After Recession Began, Tax Revenue Higher in 34 States. A decade after the start of the Great Recession, 34 states—the most yet—were taking in more tax revenue at the end of 2017 than before receipts plunged in the downturn, after accounting for inflation. States with below-peak tax revenue still have less purchasing power than they did before receipts plunged in the recession. But state to state, the recovery has been uneven because of differences in economic conditions as well as tax policy choices. Nationally, total state tax revenue recovered in mid-2013 from its plunge during the recession but has rebounded more slowly than after the three previous downturns. View the indicator or print the analysis.
States Make More Progress Rebuilding Rainy Day Funds. States have made progress in rebuilding their rainy day funds after tapping them to plug budget gaps during the recession. Nationwide, state rainy day funds held a record amount of money at the end of fiscal year 2017, and at least 26 states’ savings exceeded pre-recession levels when measured as a share of operating costs. Still, only 18 states could cover a greater share of spending than they could heading into the 2007-09 downturn when considering their total balances, counting rainy day funds plus leftover general fund dollars. Estimates for fiscal 2018, though, were higher amid an unexpected tax revenue spike. View the indicator or print the analysis.
Employment Rate Up Again, but Lags Pre-Recession High. The U.S. employment rate for adults of prime working age rose in 2017 for a seventh consecutive year, though no state could boast that its core labor pool had clearly surpassed its pre-recession employment rate. The share of prime-working-age adults (ages 25 to 54) with a job clearly remained below pre-recession levels nationally and in 10 states. Employment rates for this population were lower than in 2007 in another 30 states and higher in 10, but not by statistically significant amounts, so the results were inconclusive. View the indicator or print the analysis.
State Economic Expansion Picks Up After Lull. Since the Great Recession, the economy’s slow recovery has played out unevenly across states. Over the past decade, growth has been fastest in North Dakota, where the combined personal income of its residents has expanded at six times the rate of last-place Connecticut. State personal income growth—a measure of the economy—has trailed its historical pace, but recent data show widespread gains across states after nearly two years of particularly sluggish growth. View the indicator or print the analysis.
Even states that have overcome the effects of the recession may face financial and demographic pressures that could shape their budgets now and for years to come. A number of state governments face fiscal constraints today because of inherited shortfalls in funding for public employees’ pension and retiree health care benefits; recurring deficits between annual state revenue and expenses; and weak population growth, which can affect economic prospects and revenue collections. Among other challenges facing states are rising costs for Medicaid, a health care program that accounts for the largest share of total federal aid to states, and tax revenue volatility, which can confound policymakers’ efforts to balance budgets.
Long-Term Obligations Vary as a Share of State Resources. Unfunded pension benefits were the largest, most prominent, and fastest-growing of a selection of future costs facing states as of 2013. States reported $968 billion in unfunded pension costs—the equivalent of 6.9 percent of 50-state personal income, as well as $587 billion in unfunded retiree health care liabilities (4.2 percent of personal income) and $518 billion in outstanding debt (3.7 percent). If not properly managed, these costs can limit future budget flexibility and raise borrowing costs. View the indicator or print the analysis.
Revenue Trails Expenses Over Long Term in 11 States. Even as they dealt with two recessions, most states amassed sufficient revenue between fiscal years 2002 and 2016 to cover all their expenses. But total revenue in 11 states fell short, jeopardizing those states’ long-term fiscal flexibility and pushing off to future taxpayers some past costs for operating government and providing services. States can withstand periodic deficits without endangering their fiscal health over the long run. But chronic shortfalls are one indication of a more serious, unsustainable structural deficit in which revenue will continue to fall short of spending absent policy changes. View the indicator or print the analysis.
More Than 17 Percent of State Revenue Goes to Medicaid. The share of states’ own money spent on Medicaid grew in every state between fiscal 2000 and 2016. States’ increases varied widely, however, from less than 1 cent to about 14 cents more per dollar of state-generated revenue, exerting different degrees of budget pressure. Medicaid’s claim on state revenue surged in the wake of the Great Recession, after temporary federal economic stimulus dollars expired but before the federally funded expansion of Medicaid eligibility began, and has remained stable since. Medicaid is most state governments’ second biggest expense, after K-12 education. View the indicator or print the analysis.. View the indicator or print the analysis.
Years of Slower Population Growth Persisted in 2017. All but two states saw their population rise over the past decade. Continuing a long-term trend, however, growth nationally and in a majority of states is estimated to have slowed over the past 10 years. Eight states—the most in almost 30 years—lost residents in 2017 alone, although growth trends among states vary. Population changes are tied to states’ economic fortunes and government finances, and are therefore useful for understanding both. View the indicator or print the analysis.
Federal Share of State Revenue Rises for Third Year. The federal government is the second-largest source of state revenue—accounting for 32.6 percent of the total in fiscal 2016—meaning that federal budget decisions also play a key role in state budgets. But states’ reliance on federal funds varies widely, ranging from about 21 percent of revenue in Virginia to more than 43 percent in Mississippi. The share of states’ revenue made up by federal dollars in fiscal 2016 was the third-largest on record, capturing the first and second full year of expanded Medicaid eligibility in some states. View the indicator or print the analysis.
Tax Revenue Volatility Varies Across States, Revenue Streams. Some states experience greater swings in tax revenue from year to year than others do, leading to surprise shortfalls or windfalls that can make it hard to manage budgets. Alaska experienced the greatest volatility over the past two decades and South Dakota the least, after removing the effects of tax policy changes. Taxes on oil and mineral extraction and corporate income were consistently more volatile than other major tax streams. View the indicator or print the analysis.