U.S. states increased spending in fiscal year 2019 at the fastest clip since the end of the Great Recession, according to a new report from the National Association of State Budget Officers.
Total state spending, at $2.1 trillion, rose 5.7% from the prior year, up from 3.4% growth the year before. Spending from states’ own funds, as opposed to federal funds, rose 5.9% in 2019, the highest annual growth since the recession. Federal funds flowing to states rose by 4.7%.
“The figures show how the record-long expansion is reviving the finances of states that were hit hard by the fallout from the real estate bust,” Bloomberg’s Romy Varghese writes. “That shift has lifted the credit ratings of California, Washington and Michigan and driven down the yield penalties that investors demand to buy bonds of states such as Connecticut and Illinois.”
Spending on transportation grew by 8.9% year over year, the most of any category. That spending may continue early next year as states look to address infrastructure needs before another recession hits or election-year politics creates additional uncertainties, Karel Citroen, head of municipal research at investment management firm Conning, told Bloomberg.
“This is their now or never moment,” Citroen said. “This is going to be the final opportunity to take care of their infrastructure needs.”
But overall state spending growth is expected to slow in fiscal 2020, the report says, as states look to prepare for a potential economic slowdown and the accompanying decline in revenue growth. More than 30 states have proposed increasing their rainy-day funds, Brian Sigritz of the National Association of State Budget Officers told Bloomberg.
Some other key details from the report:
- State tax collections “experienced strong gains” in both fiscal 2018 and fiscal 2019 after slower growth in the two previous years.
- “In contrast to recent years, total Medicaid spending grew at a slower rate than state spending overall, the first time since fiscal 2012 when the federal stimulus began to wind down,” the report says.