Just 10 years ago state revenues were dismal, continually falling below estimates. Lawmakers were scrambling to plug budget gaps as best they could. Across-the-board cuts, employee furloughs and targeted program reductions were the topics of countless state budget conversations. Fast forward to today, and the state fiscal scene looks very different. Revenue performance is strong, even exceeding estimates in many states.
The ongoing economic expansion has afforded state legislatures the opportunity to balance budgets and replenish rainy day funds. Ten years ago, legislators relied on a mix of cuts, reserve funding, tax increases and other revenue-raising measures to shore up falling collections. But, since the Great Recession ended, several states have either lowered or are considering lowering their tax rates.
Still, growing uncertainty surrounds economies the world over. Equity markets have been volatile, and Brexit and international trade disputes are casting a shadow over the future of the U.S. economy. Nevertheless, the Federal Reserve has signaled that it will halt interest rate hikes, recent job reports have been positive and consumer confidence remains relatively high. This dichotomy has left economists divided over whether the country is heading for another recession anytime soon.
In the meantime, state finances are stable, and based on recent tax changes there's no clear sign of any widespread revenue challenges. Midway through fiscal year 2019, 34 of the 48 states that responded to NCSL's budget survey of legislative fiscal offices expected revenues to meet estimates, and the rest anticipated they would exceed forecasts. That puts states in a strong position as they start to craft their budgets for fiscal year 2020, which for most begins July 1.
D.C. Drives Decisions
There's no question the 2017 federal tax reform law and specific U.S. Supreme Court decisions drove many of the changes legislators made to their state tax policies in 2018.
Overall, tax changes made in all 50 states and the District of Columbia last year resulted in a net revenue increase of $1.3 billion. In terms of scale, that represents 0.1 percent of total tax collections in 2017, according to NCSL's 2018 "State Tax Actions" report, which tracks tax and revenue activity during regular and special legislative sessions, as well as measures approved by voters that affected state revenues by $1 million or more.
In addition, fee increases and decreases, revenue...