Fractured fiscal tales: although most states have avoided budget shortfalls, others face surprising new spending pressures.

• Author: Mackellar, Erica
• Position: STATE BUDGETS

Erica MacKellar is a policy associate in NCSL's Fiscal Affairs Program; Arturo Perez is the program's director. Since the end of the Great Recession, despite changes in policies and politics, states have rolled along the fiscal highway at a slow but steady pace. Revenue growth has been modest--enough to maintain state spending, but not robust enough to sustain any broad new initiatives. But now, as fiscal year 2016 begins, some states are encountering more speed bumps along the road to recovery. How drastic are conditions changing? It varies by state.

Surprise, Surprise!

In a development that surprised most budget observers, more than a dozen states had to close shortfalls as they prepared to enact FY 2016 budgets. Alaska legislators faced one of the largest, at more than $3 billion for the new fiscal year. That's a big chunk of a budget that in FY 2013 was just over $7.5 billion.

The state relies on revenues from oil and gas for about 80 percent of its general fund, so Alaska's finances were hit particularly hard when the price of a barrel of oil dropped from $115 in mid-2014 to around $45 at the start of this year. It took a special legislative session for lawmakers and the governor to hammer out a spending plan for FY 2016 before the July 1 deadline.

Louisiana also was hurt by falling oil prices. The drop in oil revenue was a major factor in a $1.6 billion projected budget shortfall for FY 2016, though other structural and economic challenges, including a weaker-than-expected personal income tax performance, were also to blame.

To bridge the budget gap, the Legislature ultimately relied on a mix of tax increases and tax credit reductions. The budget-balancing package included a $180 million cap on the state's popular film tax credit program and a 50-cent-per-package increase in cigarette taxes.

Lawmakers in Kansas had a difficult time agreeing on a spending plan for the new fiscal year as state coffers were projected to be short by more than $400 million in the new budget year. The legislators' debate over how best to close the gap made the 2015 session the longest in state history.

Officials in Kansas pointed to several reasons for the shortage, including weaker-than-projected economic growth coupled with lower severance tax collections and a drop in corporate income taxes. The Legislature extended its regular session into early June and eventually passed a balanced budget that included an increase in the statewide sales tax from 6.15...