Generally, last month’s election was a non-factor on the forecast, Fitch finds. Despite fluctuating revenues in the past, state budgeters have been careful. And with many governors reelected last month, Fitch expects that approach to continue. States under both single-party and divided control have historically shown fiscal discipline, so the agency’s analysts don’t expect that to influence budgeting.
Fitch also reports that its predictions for the current fiscal year — that growth will continue along baseline trends — are in line with those of most states, suggesting states are planning well, should those predictions be right.
And while forecasting revenues in general has become more difficult, states are doing a better job giving themselves fiscal cushioning either by planning to spend slightly less than they plan to bring in or by enhancing rainy-day reserves.
The toughest challenge ahead for states in the coming year is Medicaid, “the area of state budgets that is usually the most difficult to control.” While states have been able to contain Medicaid costs in recent years, the introduction of the president’s health-care reform law and its Medicaid expansion introduces new variables for budget managers to grapple with, Fitch finds.
“States had mixed experience with budget estimates related to Affordable Care Act (ACA) provisions in fiscal 2014, specifically regarding the increase in Medicaid enrollment by individuals who had always been eligible but had not previously taken advantage of the benefit, but variances from forecast were manageable,” the authors write.
Underfunding of infrastructure, too, appears to be getting more attention.