The National Governors Association (NGA) and the National Association of State Budget Officers (NASBO) released this report on November 29, 2011. The NGA states,
"While the overall fiscal condition of states has improved from the depths of the recession, the Fall 2011 Fiscal Survey of States...shows that states are facing a 'big squeeze' from both local and federal governments. The combination of the effects of the economic downturn, tepid economic growth and the expiration of Recovery Act and other federal funds has severely impeded the growth of state resources. Additionally, spending on Medicaid is expected to consume an increasing share of state budgets and grow much more rapidly than state revenue growth, resulting in slow or no growth in education, transportation or public safety.
Overall, state 2012 enacted budgets include nearly $667 billion in general fund expenditures, a 2.9 percent increase compared to $648 billion in general fund spending in 2011. Despite the second year with an increase, total enacted general fund spending in 2012 is still $21 billion less than the pre-recession high of $687 billion in 2008.
At the same time, local government revenues have been severely impacted by the decline in housing values. Many local governments, including school districts, rely heavily on property taxes to support their activities. These jurisdictions have been pressing states for more local assistance.
...Although state general fund revenues increased in both 2011 and 2012, the dramatic declines in revenue collections experienced in 2009 and 2010 leaves total general fund revenues in 2012 $21 billion below their 2008 level. Specifically, revenue collections in 2012 reflect a 5.2 percent increase in personal income tax revenue and a 0.1 percent decrease in corporate income tax revenue and, in addition, a 0.3 percent decrease in sales tax revenue (in part because of the end of temporary sales increases in a few states). This growth will likely not be enough to even overcome the reductions in federal funds provided through the Recovery Act that began in 2011.
...The downward revision last week in the estimates for economic growth, the continued fiscal exigencies of the federal government, weakness in housing and the inexorable growth in Medicaid spending all mean there is little relief in sight for state budgets."