A year ago there was a general consensus that the states were in trouble. Many felt that a stagnant US economy would lead to declining revenues and budget turmoil. States then would have to curtail support payments to municipalities, cutting them adrift to fend on their own. A waterfall effect would ensue, leading to hundreds of defaults.
A year later that prediction doesn’t look very accurate. Across the country state revenues have been trending up. With employment improving across the country, tax receipts are improving from a year ago. In New York for the last 6 months receipts are up 5% from a year ago and are ahead of budget. In Illinois state taxes are up an eye-popping 16%, driven by an increase in the State income tax rate. In California revenues are down 3% from a year ago, but that is due entirely to a decline in estimated taxes. Actual income tax withholdings and sales taxes are up about 5% from ago. In Michigan the State actually ran a fiscal surplus during the calendar year.
Across the country most governors and state treasurers are feeling better. Over the past four years the states struggled to close more than $500 billion in budget shortfalls, leading to spending cuts and clashes with public employee unions as the states sought to shore up their finances. Now state revenues are rising at the fastest rate since 2006. And the mild winter means that many States that budget for significant weather-related outlays will under spend in that that category, freeing up even more funds.
As the states do better you can look for them to ease up on some of the cutbacks they’ve enacted. 2012 will not see a fiscal Armageddon in the States. The fiscal state of the States is good.
Douglas R. Tengdin, CFA
Chief Investment Officer
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