State Budgets Spiral as Federal Cash Influxes Slow

(HorizonPost.com) – With federal pandemic funding drying up, state lawmakers are being forced to make adjustments to state budgets to make up for the shortfall and prepare for looming budget deficits, Politico reported.

During the pandemic years, state budgets ballooned by about 30 percent as Congress was doling out billions in federal funding to state and local governments nationwide.

Now, with federal pandemic relief a thing of the past, states like California, Massachusetts, New York, and Indiana are confronted with dropping revenue or lower-than-expected tax receipts for the first time since the pandemic began.

In some states, record surpluses have transformed into budget deficits, with politicians from both parties facing increasing political pressure as they try to navigate more difficult fiscal conditions.

In her State of the State Address on Tuesday, New York Governor Kathy Hochul warned of the looming budget deficit, saying that the pandemic relief funding from Washington had “dried up” and New York “cannot spend money we do not have.”

For the fiscal year that begins in April, New York State is facing a $4.3 billion deficit. The governor said the state would have to make “hard” but “necessary decisions” while using “taxpayer dollars creatively and responsibly.”

In FY2023, US states received nearly 60 percent more federal funds than they received in 2019, according to an expenditure report from the National Association of State Budget Officers.

At the same time, states received a boost in tax collections, with general fund revenues exceeding the projections in 46 US states. Despite that, state lawmakers are now faced with the task of cutting spending in the face of looming deficits.

In California, which enjoyed a nearly $100 billion budget surplus in 2022, the projected deficit over the next two years is expected to be as high as $68 billion.

However, the financial picture remains positive in the near term, as states have stockpiled large amounts of money in recent years.

In a fiscal survey of the states, the National Association of State Budget Officers found that US states were sitting on cash reserves of over $400 billion at the end of the last fiscal year, nearly four times what they held in 2020.