Budget update: the outlook for state budgets is largely stable for 2017.

• Author: Mackellar, Erica
• Position: TRENDS

State revenues are expected to grow a modest 2.9 percent in FY 2017 as states continue their long climb out of the Great Recession, according to the nation's legislative fiscal officers. But the good news is that the outlook for state budgets is largely stable for the remainder of the year.

Revenues are on target in more than half the states and D.C., and six states expect to exceed their revenue expectations. Idaho, for example, is experiencing greater than anticipated revenue growth. Utah is fiscally strong. And Minnesota has $1.9 billion in reserve.

But the forecast is less encouraging in 19 states where revenues were coming in slower than originally expected. Some may now face the prospect of shortfalls before the close of the fiscal year.

Personal income tax collections are mixed: on target in a third of states, below estimate in a third and above forecast in the remainder.

Sales and use taxes are particularly lackluster, and legislative fiscal officers wonder if changing demographics and generational preferences may be the causes of slow sales tax growth and volatility. And the corporate income tax, notoriously unpredictable, is lower than anticipated in 20 states. Low oil prices have slashed severance tax revenue in at least 10 states. It's particularly tough in Alaska where oil revenues account for nearly 90 percent of all the state's tax money. Lawmakers there will face some hard budget choices this session.

Medicaid spending growth, unsurprisingly, is compounding the problem of slow revenue growth. It remains one of the costliest budget lines and regularly sees the greatest year-over-year growth rate of any of the major program areas. At the end of 2016, Medicaid was coming in over budget in 10 states. Low agriculture commodity prices also have contributed to lower than...