U.S. State Coffers: "And the Money Kept Rolling In"
From coast to coast states are shattering revenue records and it’s coming in from every side: income, sales, severance, and even sin taxes.
As the song goes, “the money kept rolling in from every side” — if you survey reported June revenue receipts of U.S. states, you would see revenues continuing to exceed earlier projections by record amounts even without accounting for direct Federal aid. And it’s coming in from “every side:” income, sales, severance, and even sin taxes.
It’s not just California, from coast to coast states are shattering revenue records:
State Revenue Surplus for Fiscal 2022 Unofficially More than $400M (New Hampshire) InDepthNH
From New Jersey, a May update on the state’s revenues showed that from a low of $38.0 billion in fiscal 2020, the state’s revenues increased to an estimated $51.4 billion in fiscal 2022 (up $13.4 billion, or 35.3%, in only two years).
In their Spring 2022 Fiscal Survey of States, the National Association of State Budget Officers (NASBO) found: “49 states reported fiscal 2022 general fund revenue collections are exceeding original budget forecasts.”
With all this revenue governments are spending more, putting money into rainy day funds, and giving out tax rebates — it’s also an election year for some Governors. Yet, despite the revenue increases, public sector hiring continues to stall.
State and Local Governments are Flush with Cash
Based on Bureau of Economic Analysis (BEA) data, the Committee for a Responsible Federal Budget estimated in November state and local government (SLG) receipts were “23 percent above pre-pandemic levels and roughly 16 percent above their pre-pandemic trend in the three-month period from July through September.” They also estimated SLG spending is just 5% above trend.
The recovery of SLG employment, particularly non-education, appears to have stalled. In October, we commented on the divergence between SLG employment and broader nonfarm jobs data. Nearly a year later, things have started to improve, but remain slow. Across the country, stories about governments, schools, and transportation agencies with difficultly recruiting workers abound. Whether it’s the Great Resignation, increasing retirements, looking for better pay, or burnout — the SLG jobs recovery has been slower than private sector employment.
June’s Jobs Numbers Were Strong … for the Private Sector
According to the Bureau of Labor Statistics (BLS), total nonfarm employment is down only 0.3% from its pre-pandemic Feb. 2020 level. But if you remove SLG employment, nonfarm payroll would have recovered.
The private-sector has recovered its net job losses.
The public sector is lagging in job gains. We looked at this issue back in March more recently, but things haven’t gotten much better: the recovery in SLG jobs, less education, has been virtually flat for months.
What we wrote in March still holds true today:
It is a critically important time to get more workers to enter the public sector. While an influx of federal aid helped to prevent steeper losses of SLG jobs, it’s not having the effect of rapidly bringing workers into government. Public sector retirements are up and more employees are considering leaving their jobs. Incentive programs and higher pay are a great start, but the country needs to work on reenergizing individuals to join the public sector workforce.
Unrelated to the pandemic, the State of Connecticut saw close to 5,000 state employees retire before coming benefit changes on July 1, specifically new cost-of-living adjustment (COLA) rules. The departures are double the number of retirements the state has averaged over the previous three calendar years.
Where do state revenues go from here? It depends on a lot of factors, but one thing is certain: the strong revenue growth seen in recent months is not likely to continue indefinitely. Nevertheless, states are poised to finish fiscal 2022 on a strong note.
Any opinions expressed herein are those of the author and the author alone.