As the economic recovery begins to provide state budget writers with new and unexpected revenue streams, California is making a comeback. So is Arizona. And Michigan. And Missouri. And Ohio.
Governors across the country are using annual addresses to proclaim a comeback, recovery or rebound. The revitalized tax revenue flowing into state coffers, bolstered by income and sales tax revenues bouncing back to pre-recession levels and a strong stock market contributing millions — in some cases billions — in capital gains taxes means almost every governor has good news to share.
“Michigan is the comeback state. We’ve come farther and faster than most any other state in the economic recovery since the beginning of the great recession, and we should be proud of that,” Gov. Rick Snyder (R) said last week [pdf] in his State of the State address.
“Critics, who have long recited our state’s decline, perhaps have nothing to say in the face of California’s comeback, except ‘please don’t report it,'” Gov. Jerry Brown (D) told lawmakers on Wednesday. “Well, I’m going to report it, and what a comeback it is.”
Gov. Jan Brewer (R) spotlighted the Arizona Comeback — capital letters included — in her State of the State address. Gov. John Kasich (R) has highlighted the Ohio Comeback in campaign stops around his state. And the Republican Governors Association last month debuted a series of videos featuring Kasich and governors of Louisiana, New Mexico and South Carolina touting their states’ path back from the brink.
In Hawaii, Gov. Neil Abercrombie (D) used his State of the State address to tout an $844 million surplus in this fiscal year’s budget, a $1 billion turnaround since 2010. “I am able to report to you, our state government’s financial house now stands on solid ground,” Abercrombie said.
And in fact states’ fiscal health is improving. Almost every state will end this fiscal year with budget surpluses, ranging from a few tens of millions of dollars to several billion dollars. Forty-three states are anticipating increases in revenue and spending in the coming year, according to the National Association of State Budget Officers. And most states are socking away hundreds of millions more in reserve funds to prepare for the next rainy day.
But in many cases, the so-called comebacks will manifest as an absence of any further cuts, rather than a return to pre-recession spending levels. Thirty states are still collecting less revenue than they did before the recession hit.
“It’s been enough years since the end of the recession that you are seeing an improvement in the revenue. States, particularly income tax states, are going to benefit from the stock market,” said Scott Pattison, NASBO’s executive director. “They’re not going to have to go back and cut.”
Some states are facing short-term windfalls that are unlikely to be repeated. Initial public offerings of major tech companies like Twitter and Facebook means billions in capital gains tax revenue for California, for example. But that money isn’t a long-term revenue stream. Unveiling his proposed budget in Sacramento two weeks ago, Brown made a point to highlight the revenue peaks California’s capital gains taxes have experienced in recent years — followed directly by dramatic plunges.
“You’re not going to have an IPO like Twitter every year. So while they’re riding a nice revenue tide, that tide eventually crests and crashes,” said Kil Huh, director of the State and Local Fiscal Health Project at the Pew Charitable Trusts. “The surpluses right now are expected surpluses. They have yet to materialize.”
Huh and Pattison both warned that the sunny outlook masks long-term problems the states still face, especially threats from growing entitlement burdens. Many governors will face pressure from state legislatures to restore the deep cuts made over recent years, both to social programs and to public employee rolls.
“Populations have increased over the last few years, and there were a significant number of budget cuts to deal with the great recession, as well as layoffs of public employees,” Huh said. “There’s going to be a lot of pressure to restore those cuts.”
But heading into an election year, governors will focus on the positive news. Missouri Gov. Jay Nixon (D) spotlighted his state’s automotive industry; General Motors and Ford both recently rolled out new models to be build exclusively in the Show-Me State. Brown touted a million new jobs created in California since 2010. Snyder bragged about the 221,000 jobs Michigan has added over the same period.
And there will be at least some recognition of the work that lies ahead — just in time for governors seeking a second term in office.
“There’s a lot more to be done to be more aligned for the needs of job creators,” Kasich told an audience of local Republicans in Troy, Ohio, this week.