Government budgets are growing. State and local government purchases of goods and services, according to IHS Global Insight, will rise from $1.98 trillion in 2015 to $2.05 trillion in 2016, a 3.5 percent increase. State and local government purchases totaled $1.96 trillion in 2014.

There are plenty of positives, says Sujit CanagaRetna, fiscal policy manager at the Atlanta-based Council of State Governments’ Southern Office, the Southern Legislative Conference. He tells GPN that unemployment levels are dropping, oil prices remain significantly lower than they were a year ago, U.S. manufacturing is growing nicely led by the automotive and aeronautics sectors and consumer sentiment continues to strengthen.

And yet, there are some clouds on the horizon. Nearly two dozen states are staring at budget shortfalls, so they are scrambling for new revenue sources, says CanagaRetna. He also tells GPN: “Economic headwinds continue to plague other parts of the globe, crimping U.S. exports, which have also been adversely affected by the appreciating U.S. dollar.“ In addition, adds CanagaRetna: “States across the country have focused on enhancing their transportation and infrastructure systems with a number of measures to generate new revenues.”

The latest Blinken Report on government finance from the Nelson A. Rockefeller Institute of Government says “None of the recessions in the past half-century has shown such a slow recovery in overall state tax revenues.” The report’s authors say that the slow economic recovery, a fall-off in capital gains tax receipts, and a reluctance to raise taxes have all combined to depress state tax revenue compared to past recoveries. As a result of the budget distress, states have had to impose cuts in infrastructure spending, government employment, education, and other areas. And those cuts have gone on for several years.

Another worry is dwindling budget stabilization funds (rainy day funds and reserves) among the states. In fiscal 2014, total balances amounted to $71.2 billion, or 9.9 percent of general fund expenditures reports the National Association of State Budget Officers’ (NASBO) “Spring 2015 Fiscal Survey.” For fiscal 2015, NASBO estimates that total balances declined to $60.3 billion or 8.0 percent of expenditures.

Budget reserves and rainy day funds are important, says Scott Pattison, the executive director of NASBO and a former Virginia budget officer. "A lot of states need to think more seriously about building reserves. We don't know when the next downturn will be."

Michael Keating is senior editor for American City & County and the GPN web site. Contact: michael.keating@penton.com

In the video, Wisconsin Gov. Scott Walker talks about lower property tax bills, a state college tuition freeze and other benefits of the latest proposed Wisconsin state budget.

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