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Slower Growth Ahead: Revenue Surpluses Boost U.S. State Budget Flexibility, For Now

(Editor's Note: The text for Mississippi has been updated to reflect more current information. )


In S&P Global Ratings' view, state budgets have benefited over the past year from an economic environment boosted by federal stimulus injections, low bond interest rates, and pent-up consumer demand. Accordingly, state revenues have largely been reported as better than forecast and have remained strong even in the wake of generationally high inflation levels. This legislative cycle, states are choosing how to direct excess revenues. Most have already allocated the received American Rescue Plant Act (ARPA) funds in a structurally balanced manner, allowing for state budget priorities to focus on items other than the critical infrastructure projects funded by ARPA.

As federal support tapers off and interest rates climb, we expect fiscal 2023 budgets will see slower revenue growth as the economy cools. We believe some states will be better positioned for this slowdown while others, which are depending on economic growth to offset tax rate reductions, could face structural pressures depending on the accuracy of their revenue forecasting. In addition, we continue to expect that long-term cost pressures could continue to challenge future budgets.

The Baseline Forecast Lowers U.S. Economic Growth Projections For 2022 And 2023

S&P Global Economics' most recent baseline forecast lowered its projections for the nation's economic growth over the next two years. Specifically, the forecast lowers U.S. GDP growth to 3.2% (from 3.9%) in 2022 and to 2.1% (from 2.7%) in 2023. (See "Economic Outlook U.S. Q2 2022: Spring Chills," published March 29, 2022, on RatingsDirect.)

The forecast incorporates largely healthy U.S. economic activity through early March and subsiding Omicron infection rates but notes the Russia-Ukraine conflict worsens already troubling pricing pressures tied to continued supply-chain disruptions. Consumer confidence and stock prices are expected to weaken, due in part to conflict-driven higher prices, further weighing on household purchasing power and spending trends. To combat high inflation levels, the Federal Reserve will likely hike rates multiple times. Even so, the forecast anticipates pricing pressure will remain elevated through 2022, which could affect retail sales.

More Than Half Of The States Have Enacted Their Fiscal 2023 Budgets

S&P Global Ratings reports that more than half of the states have enacted their budgets for the upcoming fiscal year. Notably, states are back on track with typical timing procedures this budget cycle following delayed negotiations last year brought about by uncertainty surrounding spending rules for incoming ARPA funds and a stronger-than-anticipated rise in revenue collections that necessitated updates to forecasting.

During even numbered years, more states are in the middle of their biennial budget cycles. Therefore, budget negotiations for many states this year were limited, focusing on modifying already agreed-on spending plans. We believe these midbiennium tweaks allow states to better guide their budgets based on updated information.

Chart 1


Some States Translate Surplus Revenues Into Tax Reforms

Fueled by better-than-anticipated revenue trends, S&P Global Ratings reports approximately one-third of states are pursuing notable general fund tax reforms this legislative session.

Most tax changes approached this budget cycle are reductions to personal income tax (PIT) rates, a major general fund revenue source for most states. For example, legislators in Mississippi (for which PIT collections make up approximately one-third of the state's general fund budget) approved reductions to the state's individual income tax by eliminating a 4% tax bracket effective tax year 2023, and lowering an existing 5% tax bracket to 4% over three years. The income tax legislation awaits review by the governor, and its effect on the fiscal 2023 budget and long-term income tax revenue remains uncertain. We observe that most states reducing PIT rates tend to approach the change gradually over several years as to temper the budgetary effect. However, most forgo revenue triggers or offsetting changes to ensure budgetary balance. Instead, they assume economic growth will make up for the resulting revenue losses. Absent established protections aimed at preserving structural balance, we believe states that rely on growth for budgetary stability will be more vulnerable to economic slowdowns. We believe it's important for these states to maintain ample budgetary reserves, especially until a point where the tax reduction is fully implemented and structural budgetary balance is proven to be maintained.

Other notable tax reforms discussed this legislative session include property tax rebates and reductions to corporate income tax rates. Illinois and New Jersey, which impose among the highest property taxes in the country, are temporarily expanding or offering property tax rebate programs in part to combat the effects of high inflation on households. Similarly, some states are suspending sales taxes on groceries; however, we expect this change spurs a lesser budgetary impact. Outside the general fund, some states are pursuing temporary gas tax holidays for similar household spending relief (for more information, see "Temporary State Gas Tax Suspensions Likely Will Not Affect Revenue Or General Obligation Bond Ratings," published April 12, 2022).

Chart 2


Upswing In Revenues Also Leads To A Boost In Rainy-Day Reserves

We anticipate most states will begin fiscal 2023 with increased budgetary cushion, following recent legislative actions across the country to direct portions of recent surplus revenue collections to rainy-day reserves. In an environment where economic growth is projected to slow, we believe maintaining ample reserves will be important for all states but especially crucial for those that are depending on economic growth to maintain budgetary balance.

Data from the National Association of State Budget Officers (NASBO) supports, on the whole, the projection that state rainy-day fund balances will be stronger going into fiscal 2023 than they were in fiscal 2019 before the COVID-19 pandemic. Specifically, NASBO reports 25 states are projected to have reserve levels of at least 10% of expenditures, based on fiscal 2022 enacted budgets, compared with 19 states meeting this threshold in fiscal 2019.

Chart 3


Several notable examples of upcoming reserve deposits include Maryland, North Carolina, and Washington, each of which is projecting to make substantial deposits to reserve funds. In some instances, states are choosing to build up alternative reserve funds--rather than formal, more legally protected, reserve funds--to provide for more flexibility. In our view, this additional flexibility could be beneficial for some state budgets, provided spending plans remain limited and formal reserve accounts are maintained for use in severe economic environments.

The Projected Slowdown In Economic Growth Will Temper The State Budget Environment

State budgets have benefited from higher-than-forecast revenue surpluses over the past year. Because deployment of significant ARPA federal aid lowered the need to budget general funds for critical infrastructure projects, states have been faced with the question of where to direct surplus revenues. Some have chosen to reduce tax rates in an effort to boost household spending, and therefore economic growth, while others have chosen to sock away even more reserves for uncertain or severe times. Few states have chosen to direct additional resources toward addressing long-term retirement liability challenges, in part because strong returns recently have at least temporarily elevated funded ratios. We believe retirement liability pressure, along with other challenges such as high fixed costs, must continue to be addressed before reaching a point where long-term budgetary flexibility is limited and a state's ability to respond to significant economic shocks is suppressed.

In fiscal 2023, we expect the strong revenue growth experienced in recent months will temper given projections for a nationwide slowdown in economic growth. While we believe some state budgets are better positioned for slower growth than others, we expect historically high reserve levels built over the past decade will support stability over the upcoming budget cycle. As economic and revenue conditions normalize, we expect states will redirect some of their focus to addressing long-term pressures such as retirement liabilities and high fixed costs.

State Budget Roundup


Alabama's governor signed into law a $2.7 billion state general fund (SGF) and $8.3 billion education trust fund (ETF) budget for fiscal 2023, beginning Oct. 1, 2022. The fiscal 2023 SGF and ETF spending plans would see 8.9% and 7.0% increases, respectively, representing $811 million in combined new spending over the current fiscal year. Each would be the largest in the state's history. Notable spending initiatives include the ETF budget's increased funding for kindergarten to grade 12 (K-12) education by $370.5 million and for higher education by $159.7 million, including salary increases for public education employees. The SGF budget includes a 4% raise for most state employees and funding increases for most state agencies, which is estimated to have a $35 million fiscal impact for fiscal 2023. In addition, a proposed $772 million supplemental appropriations bill could direct the remainder of the first tranche of ARPA funding for one-time broadband and water infrastructure, health care, and local assistance grants. Given better-than-budgeted revenue performance, Alabama projects it will end fiscal 2022 with $1.44 billion of combined SGF and ETF reserves, which we consider very strong at 13.2% of enacted fiscal 2023 expenditures.


The governor's executive budget for fiscal 2023 forecasts oil prices of $71 per barrel, which is below current price levels, indicating possible upside potential in budgetary revenue in the near term. However, a March 2022 updated state forecast anticipates an oil price of $83 per barrel in fiscal 2022 and $85 per barrel in 2023, which would raise expected unrestricted revenue by $572 million in fiscal 2022 and by $944 million in fiscal 2023, estimates that may or may not be used in the legislature's final 2023 budget. Absent another major long-term drop in oil prices and noting cuts in unrestricted operating expenses in recent years, we believe it is reasonable that the state will have longer-term budgetary balance if it does not substantially increase ongoing spending. Alaska has historically put money aside in reserves and increased one-time capital and other one-time spending during good times but has also increased ongoing expenditures at times, including its permanent fund dividend to state residents. The supplemental 2022 executive budget proposal estimates spending an additional $795.6 million for permanent fund dividends that, when combined with the existing appropriation for dividends, total $1.5 billion (22% of unrestricted operating revenue) or $2,330 per person) in fiscal 2022, and the 2023 executive budget proposal estimates spending a permanent fund dividend of $1.7 billion, or $2,564 per person, in 2023. The executive budget proposals for a supplemental $795.6 million fiscal 2022 dividend and a $1.7 billion distribution in fiscal 2023 are being considered by the legislature. The legislature appropriated smaller dividends than the governor requested in fiscal years 2020-2021.


Arizona's fiscal 2023 executive budget proposal would make a $425 million deposit to the state's budget stabilization fund (BSF) balance, bringing it up to $1.4 billion, or a strong 10% of proposed fiscal 2023 general fund revenues, up from an estimated 7.8% at fiscal year-end 2022. In addition, the executive budget projects a fiscal year-end 2023 general fund balance of $1.0 billion, or 7.1% of proposed spending, although this would be down from an estimated $2.0 billion general fund cash balance at fiscal year-end 2022. The state estimates that the 2023 executive proposal would have a $552.4 million structural operating surplus, or 4.2% of proposed ongoing spending, excluding one-time items. The executive budget assumes that a lower court ruling invalidating Proposition 208, an income tax surcharge on upper income individuals dedicated to education, will be upheld.


The governor's $6.02 billion general fund budget for fiscal 2023 increases spending by a moderate, in our view, 3% over Arkansas' enacted general fund budget for fiscal 2022. We note the $6.02 billion spending plan is below the state's $6.22 billion 2023 revenue forecast, which we consider prudent. Arkansas' revenue forecasting incorporates tax cuts passed during a special legislative session in December 2021, which reduces the top individual income tax rate to 4.9% from 5.9% over the next four years. As a result of the change, general fund revenue forecasts were revised downward by $135.3 million (2.3%) for fiscal 2022 and $307.4 million (4.9%) for fiscal 2023. Still, the budget proposal expects a $174.4 million general fund surplus, allowing for further improvements to reserves. We've calculated reserves to be approximately $1.5 billion at the 2021 fiscal year-end or approximately 26% of the $5.9 billion available for distribution.


The governor's fiscal 2023 executive budget proposal forecasts significantly higher revenue and fund balances than what was forecast in the adopted 2022 budget, as well as continued strong revenue in fiscal 2023. The proposal anticipates using most of its self-identified cyclical revenue and large accumulated reserves on one-time spending. The California department of finance (DOF) has reported that as of the end of February 2022, year-to-date general fund revenue in fiscal 2022 was already 14.9% above the amount forecast in the 2023 executive budget proposal, led by strong corporate and PIT receipts. The 2023 budget proposal estimates that fiscal 2021 ended with revenues and transfers $5.4 billion higher than anticipated when the 2022 budget was adopted. Combined with a $21.3 billion higher revenue estimate for fiscal 2022, not including recent higher monthly collection figures, the DOF estimated fiscal 2022 will end with a large unreserved general fund balance of $20.5 billion, or a strong 9.7% of expenditures. Adding in other reserves, including the state's budget stabilization account, public school stabilization account, and safety net reserve, total reserves and unrestricted balances would total $47.3 billion at fiscal year-end 2022, or a very strong 22.5% of expenditures. A revised executive budget proposal will be released in May.


The March 2022 Office of State Planning and Budgeting (OSPB) quarterly forecast estimates that the governor's fiscal 2023 budget proposal would bring in $16.6 billion in general fund revenues, up 2.8% compared with fiscal 2022 estimates, and a combined general fund and state education fund reserve of $4.5 billion in fiscal 2022, which we consider very strong at 27.4% of combined expenditures, an increase from $3.7 billion in fiscal 2021 due to higher-than-budgeted revenue. However, the OSPB forecast anticipates the combined general fund and state education fund reserve will decline to $3.3 billion in fiscal 2023 (a still very strong 16.7% of expenditures) assuming the governor's request for a one-time $1.3 billion draw on reserves, including $500 million to the unemployment insurance trust fund, $424 million for air quality projects, a $150 million buydown of the budget stabilization factor, $104 million toward fee relief for businesses, $51 million for workforce initiatives, and $46 million for a public safety investment package. The legislature will likely change the amount of such drawdowns by the time the legislative session ends May 11. Colorado anticipates the possibility of a structural budget deficit beyond 2023 given that service costs are likely to outpace revenues, which are expected to remain constrained the state's constitutional revenue growth cap. The state anticipates such shortfalls would need to be resolved by future legislative action if it arises. Press reports at time of this publication indicate a final 2023 budget has been signed by the governor; however, details are not yet available.


Connecticut's governor proposed midbiennium revisions for the fiscal 2022-2023 biennial budget would increase fiscal 2023 general fund appropriations by $537.8 million, or 2.5% above the enacted budget plan. The proposed budget changes are based on improving revenue performance and incorporate the upward revision of $872.9 million in additional revenue from the January 2022 consensus revenue forecast . However, we recognize the proposed fiscal 2023 budget adjustments still rely on nearly $945 million in federal ARPA funds, or 4.2% of general fund revenue, which could result in a budgetary gap in subsequent biennia. Connecticut continues to exercise strong budgeting practices based on statutory changes that include a revenue volatility cap requiring a transfer to its budget reserve fund (BRF). As of April 1, 2022, the state's Office of the State Comptroller projects to end fiscal 2022 (June 30, 2022) with a $1.76 billion general fund surplus. When combined with an anticipated revenue volatility transfer of $969 million, the BRF balance would increase to 27% of fiscal 2023 general fund appropriations, above the 15% BRF reserve cap. The state estimates that the excess surplus, approximately $2.6 billion, above the BRF and revenue reserve caps could be available to reduce the state's very high unfunded pension liabilities.


The governor presented a $4.99 billion fiscal 2023 general fund budget, up 4.6% over the adopted fiscal 2022 budget. The fiscal 2023 proposal appropriates less than 98% of Delaware Economic and Financial Advisory Council (DEFAC)-determined available revenues, meeting the 98% DEFAC guidance, continues to fully fund the rainy-day fund at 5.0% of general fund operating expenditure, and keeps the BSF at 5% of gross revenues. These reserve balances are an all-time nominal high level of more than $565 million combined, and the state does not expect to draw on them in fiscal 2023. Since this budget proposal was introduced, the latest DEFAC projections show increased revenues for fiscal 2022 by $206 million and fiscal 2023 by $134 million. A portion of these additional revenues will be used to fund a $300 check to each Delaware resident who filed a 2020 tax return to help offset high inflation and gas prices. Other postemployment benefit (OPEB) costs remain a credit focus and the state is beginning to address the $9.4 billion liability with the General Assembly considering Executive Order 52 that authorizes allocating 1% of the previous fiscal year's budget into the OPEB trust fund; in fiscal 2023, that would be about $47.7 million.


The Florida Legislature adopted a 2023 budget totaling $112.1 billion ($43.7 billion general fund), reflecting a 10.4% increase from fiscal 2022. The budget does not include $3.5 billion from the ARPA, which is expected to be received in May. The spending authority, which has been legislatively approved, will become effective once funds are received. The state's Consensus Revenue Estimating Conference forecasts recurring general revenue will decline 5% in fiscal 2023 relative to fiscal 2022 reflecting in part the comparatively strong revenue collections in the current fiscal year. The budget is not final until the governor reviews and approves it. The state's combined general revenue and BSF reserves are forecast to end the current fiscal year at 38.6% of expenditures.


The Georgia Legislature approved a $28.6 billion general fund budget for fiscal 2023, which is largely in line with spending priorities outlined in the governor's proposal. Notably, the budget includes a $2,000 increase to the base salary for teachers and a $5,000 cost-of-living adjustment for most state and university employees. If signed into law, the fiscal 2023 budget would fully restore funding to the state's K-12 education funding formula and the University System of Georgia institutions, both of which experienced funding reductions in fiscal 2021. In addition, Georgia's legislature approved a measure to phase in a reduction of the state's top income tax rate to a flat 4.99% from 5.75% over six years, with the first tax rate reduction occurring after Jan. 1, 2024 (contingent on the state meeting certain revenue targets). We understand the state's budget would not be affected until fiscal 2024, but the revenue changes could amount to as much as $1 billion when fully implemented over six years (or 3.9% of budget). However, the expectation is that the tax reduction would be phased in, subject to revenue growth triggers, and generate additional economic activity. Due to rebounding state revenues and a substantial year-end surplus in fiscal 2021, the state currently holds approximately $4.3 billion in revenue shortfall reserve (RSR), or 16.6% of estimated fiscal 2023 general fund expenditures, which we consider to be very strong. The RSR cannot exceed 15% of the previous fiscal year's net receipts, and the state categorizes approximately $2.3 billion as unreserved, undesignated surplus. Georgia does not explicitly budget for additional contributions to the RSR but has a history of adding available surplus to the account.


The state's enacted biennium general fund budget totals approximately $8 billion in fiscal years 2022 and 2023, which represents a decrease of 3.1% in the second year over fiscal 2021 appropriation levels. However, significantly higher-than-expected revenues have led to a supplemental budget proposal to adjust 2023 general fund appropriations by 10% to $8.7 billion and increase planned deposits in its emergency reserves. The general fund revenue forecast now expects a 21% growth in tax revenues in fiscal 2023 based on the state's Council on Revenues' March 2022 forecast. At the end of fiscal 2022, Hawaii estimates its emergency and BRF balance will be $15.5% of fiscal 2022 expenditures; the state legislature approves the proposed transfer to the emergency and budget reserve fund during the current legislative session.


Idaho's legislature began working on its next budget in early January and completed its work in late March. As initially proposed, the governor's budget was slightly less than 13% larger than fiscal 2022, with the general fund portion up 8.1%. We understand the final adopted and signed aggregate for the general fund was approximately 9% larger than fiscal 2022. The governor's signed legislation provides for a $350 million one-time tax rebate and proposes to reduce the top PIT and corporate income tax rates to 6.0% from 6.5%, which is estimated to cost $251 million in the next fiscal year. The budget is balanced without the use of reserves and estimates to collectively total nearly 25% of general fund expenditures.


The $46.0 billion general fund fiscal 2023 budget passed in early April. The enacted budget is 5.0% larger than the fiscal 2022 initially adopted budget, but 5.0% smaller than estimated general fund final spend in fiscal 2022. The introduced budget is designed to generate a $132 million surplus, after a $312 million transfer to the BSF. Should all proposed fiscal 2022 and adopted fiscal 2023 contributions be made to the BSF, the balance would be at a decades' high level of $1 billion, or 2.4% of the fiscal 2023 general fund revenues. The budget includes $1.8 billion in tax and fee relief of $685 million for direct rebate checks, $520 million in property tax rebates, $400 million in freezing grocery taxes, $100 million to permanently expand the earned income tax credit, and $70 million in suspending the gas tax for a year, among other items .Although the state's fiscal 2023 general fund budget is generally balanced in terms of current-year obligations, we do not view it as structurally balanced due to the treatment of pension obligations. General fund pension contributions of $9.6 billion are budgeted to fully meet increasing statutorily set amounts but, even considering the additional $500 million contribution above the statutory amount, are still less than actuarially determined amounts. We view the difference between the statutorily set contribution amounts and our defined minimum funding progress as a structural gap, and that a pension-related structural gap is expected to hold steady over the next few years at about 10%.


Indiana's enacted 2022-2023 biennial general fund budget totaled slightly more than $36 billion, with fiscal 2022 totaling $17.7 billion, before adjustments or reversions. During the midbiennium legislative session, the legislature adopted, and the governor signed, a gradual reduction (seven years) in income tax rates. The first reduction will take effect at the start of the next fiscal year with an estimated budget impact of $100 million. In subsequent years, if revenues exceed 2% of the previous year's collections, a further reduction in rates will take effect. For the biennium, appropriations for education and health and human services account for about 80% of total general fund appropriations. When adopted, the structurally balanced budget is expected to include fully funded pension obligations and Medicaid growth. While not anticipated, with the governor's approval, the state budget director can withhold allotments of appropriations to agencies if revenues are less than anticipated to prevent a deficit. Budget adjustments have historically been implemented regularly and on a time. As adopted, the current biennial budget preserves reserves at nearly 15% of annual appropriations.


Iowa's legislative session, which generally lasts about 100 days, is expected to extend this year as lawmakers continue to negotiate budget items. The state, which approves its general fund budget in a series of spending bills rather than one overarching spending bill, already enacted several tax reform initiatives into law that are expected to reduce income taxes, the state's largest source of income, over time. Specific changes include reducing the individual income tax rate beginning in tax year 2023 until it ultimately reaches a 3.9% flat tax rate by 2026. The law removes triggers designed to temper, in economic downturns, an income tax reduction passed in 2018 and is designed for economic growth to offset revenue losses. The general fund impact of the tax changes is expected to be $232 million in fiscal 2023, or 2.8% of the governor's $8.2 billion general fund budget for fiscal 2023. The budget is expected to fully funds the cash reserve fund and the economic emergency fund at $803.3 million or 9.8% of budget, which we consider strong.


Kansas' enacted fiscal 2023 budget projects a general fund ending balance of approximately $895 million. However, the budget does not include education, which reduces the budget general fund expenditures by 45% compared with the previous year. We expect that the legislature will finalize its education funding as part of its veto session beginning April 25. The budget projects the BSF at $500 million for combined stabilization fund reserves and general fund balances representing 17% of prior years' expenditures. Furthermore, the projected reserve balance meets Kansas' statutory ending balance requirement of at least 7.5% of total expenditures. The budget incorporates $479 million in COVID-19 pandemic relief expenditures of one-time spending in fiscal 2023, including $458.2 million for all Elementary and Secondary School Emergency Relief programs..


The Commonwealth of Kentucky's enacted 2022-2024 biennial budget, finalized April 13, 2022, is structurally balanced and projects healthy general fund revenue growth. The budget is one of the most significant in Kentucky's history in terms of calling for substantial contributions to the state's pension funds beyond the actuarial recommendation; it includes additional funding above the actuarial recommendation of $215 million in fiscal 2022 applied to the State Police Retirement System's unfunded pension liability, and additional funding of $240 million in 2023 and $240 million in 2024 to be applied to the Kentucky Employees Retirement System Nonhazardous pension fund's unfunded pension liability, as well as $479.2 million to the Kentucky Teachers' Retirement System to pay off principal for past benefit enhancements. In addition, the budget includes continued funding of the BSF with a large $250 million deposit that will help maintain financial flexibility. The state also broadened the sales tax base and lowered the income tax rate with House Bill 8; Under this bill, Kentucky's 5% individual income tax rate will be lowered incrementally until it is eliminated. The first reduction, to 4.5%, is slated for Jan. 1, 2023.


Louisiana's legislative session convened on March 14, 2022, and the legislature is in the process of developing the state's fiscal 2023 budget. The governor's fiscal 2023 executive budget (all funds), as presented, is approximately 4% smaller that fiscal 2022. The state's Revenue Estimating Conference adopted a conservative estimate for the next fiscal year (2023) of approximately $10.94 billion in general fund (direct) funds available, a 7.6% increase from its previous official estimate for the fiscal year. The outlook reflects in part stronger-than-anticipated sales tax and individual income tax collections. In our view, the adoption of a slightly more conservative estimate, which will be used to guide Louisiana's next budget, reflects a prudent approach to maintain structural balance. Reserves are estimated to grow in the current year to reach $720.81 million, or 7.2% of general fund appropriations by the end of the current fiscal year.


As the state approaches the midpoint of its fiscal 2022-2023 biennium, Maine's Revenue Forecasting Committee (RFC) revised its general fund revenue projections upward by an additional $411.7 million (or 4.4%) for the current biennium. The RFC estimates the surplus will rise to nearly $1.2 billion above the enacted biennial budget. In April 2022, the state enacted a supplemental budget that will increase general funding spending by $175 million, or 2% above the enacted 2022-2023 biennial budget. It uses $729 million of the projected biennial surplus to provide a one-time $850 direct relief payment to approximately 858,000 Maine residents to manage the effects of inflation and other rising costs. The supplemental budget also includes a one-time $50 million transfer to the Maine Department of Transportation and a $50 million transfer with year-end surplus (if available) to provide pay-as-you-go capital funding for projects, potentially eliminating the need to bond for transportation improvements in the current biennium. The supplemental budget anticipates a $42.5 million Medicaid stabilization fund balance and establishes a new education stabilization fund that would be funded with $15 million from year-end surplus (if available). Maine's BSF balance currently stands at $493 million, or approximately 12.5% of fiscal 2023 general fund expenditures.


Maryland's enacted general fund budget for fiscal 2023 totals $28.0 billion, a significant 32.6% increase over $21.1 billion of appropriations in fiscal 2022. The largest spending increases are for medical assistance ($772.5 million, largely due to ending of enhanced federal spending), other executive agencies ($722.7 million), education/libraries ($500.8 million), and health ($421.6 million). Notably, this budget cycle is the fourth in a 10-year phase-in of the Kirwan Education Commission's recommendations to improve public education, and the enacted budget funds education beyond statutory requirements. Revenues are also projected to increase, albeit at a slower pace than expenditures. The Board of Revenue Estimates projects in its March 2022 report that general fund revenues will rise to $23.5 billion, a 4.8% increase over fiscal 2022. Despite this juxtaposition, the state reports the budget's ongoing revenues outpace ongoing expenditures. Also affecting revenues is the enacted budget's five-year plan (fiscal years 2023 through 2027) to provide a nonrefundable credit against the state income tax for a resident who is at least 65 and whose federal adjusted gross income does not exceed $100,000 ($150,000 if married and filing jointly) ($1.55 billion), create a tax credit for businesses to hire and retain workers for underserved communities ($141 million), and provide sales tax exemptions for child care and critical health products ($55 million). The fiscal 2023 general fund impact of the retiree tax change, which is effective for tax year 2022, is negative $292 million, or a relatively small 1.0% of annual general fund expenditures. The enacted budget brings the state's rainy-day fund to $2.4 billion or a very strong, in our view, 10.0% of fiscal 2023 general fund expenditures, which is well above a 9% recommendation by the General Assembly's spending affordability committee.


The state budgeted a BSF drawdown in fiscal 2021, but instead ended up with a substantial increase. At fiscal year-end June 30, 2021, the BSF stood at $4.6 billion, or a strong 8.9% of operating expenditures and other uses on a budgetary basis of accounting. In recent years, Massachusetts has enacted its budget after the July 1, start of its fiscal year, using short interim budgets until a final budget is enacted. Revenues are running ahead of budget so far in fiscal 2022, with fiscal-year tax collections through March 2022 up 22.0% over the same period the year before, and 8.6% above the state's updated January 2022 forecast used for the governor's fiscal 2023 budget proposal. The governor's fiscal 2023 executive budget proposal projects the BSF will grow to $6.6 billion at fiscal year-end 2023, or a strong 13.7%, up from $5.9 billion, or 11.5% at fiscal year-end 2022.


Michigan's fiscal 2023 budget proposal includes $74 billion in total spending, and $14.3 billion in general fund spending, which is 10.7% higher than general fund spending in fiscal 2022, largely spurred by an increase in nonrecurring expenditures. After withdrawing $350 million from its BSF in 2020 in anticipation of pandemic-related revenue declines, Michigan plans to add to its BSF for a second year, leading to a balance of about $1.5 billion, or what we view as an adequate 4.8% of combined general fund/general purpose and school aid fund expenditures at fiscal year-end Sept. 30, 2023. The most recent state revenue forecast was made in January 2022, forecasting general fund revenue increasing by 3.6%.


Minnesota enacted its 2022-2023 biennial budget in last year's legislative session. Due to the strong economic recovery, coupled with inflation, Minnesota Management and Budget's February forecast projects that revenues for the current biennium will be even higher than prior estimates at $57.3 billion. Spending is estimated to be $51.7 billion, resulting in a sizable $9.25 billion (18%) general fund surplus, on top of its $3.3 billion (6.4%) of general fund reserves. The legislature typically adopts a supplemental or modification to the budget in even-numbered years, so we are watching for any adjustments that might be passed during this legislative session that ends in May. The governor's 2022 supplemental budget proposal includes approximately $9 billion of mostly one-time spending on specific priorities including: unemployment insurance replenishment and economic stimulus ($6.1 billion), education and childcare ($1.3 billion), and health and safety ($1.6 billion). Conversely, the Republican-led senate recently passed a sizable income tax cut that would reduce the state's first tier income tax rate to 2.80% from 5.35% that is estimated to cost $3.0 billion this year and $2.5 billion each year after. The Democrat-led house is not considering a reduction in the tax rate, rather it is proposing $1.65 billion in various tax reductions and credits. Given Minnesota's politically divided state legislature, we believe compromise might be difficult and it is uncertain which provisions might pass both the house and senate levels.


Mississippi's legislature passed a nearly $6.3 billion general fund budget for fiscal 2023, up 8.1% from $5.8 billion enacted for the fiscal 2022 general fund budget. Revenues for fiscal 2023 are projected to be higher than expenditures by approximately $200 million (3.2%) compared to the governor's budget proposal and Joint Legislative Budget Committee's general fund revenue estimate of $6.493 billion for fiscal 2023. These estimated revenues reflect an increase of $566.5 million (9.6%) over the fiscal 2022 sine die estimate. This budget cycle, the legislature approved cuts to the state's individual income tax by eliminating a 4% tax bracket effective tax year 2023, and lowering an existing 5% tax bracket to 4% over three years. The income tax legislation awaits review by the governor, and its effect on the fiscal 2023 budget and long-term income tax revenue remains uncertain. The individual income tax is a material revenue source for Mississippi's general fund budget; collections of $2.2 billion made up approximately one-third of (33.5%) of total general fund revenue collections in fiscal 2021. The working cash stabilization reserve fund is expected to be $556.0 million or a strong, in our view, 8.8% of fiscal 2023 expenditures.


Missouri's fiscal 2023 executive budget recommendation features a general revenue fund (GRF) spending plan totaling $12.06 billion, or a 15.6% increase in operating appropriations over the previous fiscal year. The year-over-year change in state-share spending primarily reflects a $1.09 billion general revenues ($2.8 billion all funds) increase in Medicaid expenditures and $131 million general revenue ($228 million all funds) in proposed funding for state employee salary increases. It also allocates $2.9 billion in federal ARPA funding for nonrecurring economic and public health support initiatives, and one-time infrastructure and government service improvements. In addition, the budget proposes establishing a cash operating expense fund that would set aside up to 2.5% of prior-year net revenue collections to potential future budgetary pressures, including an initial deposit of $281 million to the fund in fiscal 2023. The executive recommendation also includes a $500 million extraordinary pension payment to the Missouri State Employee Retirement System (MOSERS) plan in addition to annual pension contributions, and $100 million to amortize a portion of the state's debt outstanding. Extraordinary MOSERS and debt reduction payments could improve current pension funding levels, decrease future employer contribution rates, and generate medium- to long-term budget savings, which could lend to our view of Missouri's credit stability. The governor's budget recommendation does not include a projection of the state's year-end fiscal 2022 balance in its BRF, but the current balance stands at $771.1 million, or 6.4% of proposed 2023 general fund expenditures.


Montana's biennial budget for the fiscal 2022-2023 biennium provided for $2.60 billion and $2.68 billion in general fund spending, respectively. The budget assumed slightly higher revenues of $2.64 billion and $2.75 billion, respectively, for the same periods; however, current forecasts are significantly exceeding these estimates. Montana's most recent revenue report overview, published in February 2022, estimates revenue of $3.22 billion for fiscal 2022 (average of multiple revenue forecasts), which is $573 million above the forecast used for the budget. The legislative fiscal division currently estimates an ending general fund balance of $718.6 million at year-end 2023, or what we view as a very strong 28.6% of expenditures.


Nebraska's financial position has significantly improved since enacting its fiscal 2021-2023 biennial budget. The enacted budget has been updated numerous times since it was presented at the end of the 2021 legislative session in May 2021, in which it projected a general fund reserve balance of $27.4 million above its 3% minimum reserve requirement (excess from minimum reserve) at the end of the 2023 fiscal year. The extension of the income tax filing deadline significantly raised the tax cuts provided under the Nebraska Property Tax Incentive Act resulting in a temporary projected balance of $101 million below the 3% requirement. However, stronger-than-projected revenue growth has eliminated the expected shortfall, and the appropriation committee's preliminary report (published in February 2022) forecasts reserves of $416 million, or 4.1% of the biennial budget, and $512 million, or 4.8%, for the 2023-2025 biennium (excluding its cash reserve fund). The same report estimates a general fund balance equal to $942 million and a cash reserve of $998 million at the end of fiscal 2022, equating to 19.6% and 20.8% of 2022 expenditures, respectively. While we expect reserves will remain strong, we understand additional tax reforms are anticipated following the current legislative session, including a proposal to reduce the PIT rate to 5.84% from 6.84% and the corporate income tax rate to 5.84% from 7.50% by 2025. In fiscal 2025, these tax reductions are estimated to reduce revenue by approximately $296 million, or 5.0% of fiscal 2025 estimated appropriations, which we view as significant.


Nevada's budget for the 2021-2023 biennium totals almost $9.9 billion, which is 10.5% above 2019-2021 biennium spending levels. The state had previously cut spending to align with Economic Forum forecasts last year, reflecting the pandemic's effects and a large $1.2 billion shortfall in estimated revenue compared with budget. However, improved revenue projections have since allowed for restoration of previous budget cuts. The budget plans for general fund balances above the required 5% levels in each year of the biennium as well as transfers to the rainy-day fund for a combined rainy-day and unappropriated balance of about 17% of the annualized budget by the end of fiscal 2023. The spending plan includes assumed 2.3% growth in Medicaid caseloads incorporated into 12.2% budgeted growth in health and human services expenditures as compared to the previous biennial budget. The federal ARPA, which passed after the release of the state's executive budget, allotted $2.7 billion of direct aid to Nevada, which has more than doubled Nevada's liquidity compared with the state's prior average general fund cash balances. The state authorized using a portion of ARPA funds to replenish the unemployment insurance trust fund and cover public health emergency costs.

New Hampshire

New Hampshire has not made any material changes to its enacted fiscal 2022-2023 biennium. The operating budget for the state's general and education trust funds totals approximately $2.69 billion in fiscal 2022 and $2.70 billion in fiscal 2023, representing a 3.9% decrease and 0.5% annual increase, respectively, which we consider modest over the previous fiscal biennium. The state has not revised it biennial revenue forecast, but officials report total general and education trust fund receipts were $194.6 million above the enacted budget plan through March 31, 2022. Current economic growth and year-to-date revenues appear to be on an improving track, although we continue to monitor the medium- to long-term revenue effects of enacted reductions to the state's business profits, business enterprise, and meals and rentals tax rates. New Hampshire's revenue stabilization reserve account (RSRA) balance currently stands at $257.8 million, or a strong 9.3% of net appropriations at the end of the fiscal 2020-2021 biennium, the highest level in state history. The state anticipates that it will maintain at least stable balances in the RSRA through the end of the fiscal 2022-2023 biennium.

New Jersey

The governor's $48.9 billion budget is under consideration by the legislature, with adoption with modifications expected by June 30, 2022, when the current fiscal year ends. With revenues coming in stronger than anticipated in fiscal 2022, the proposed budget assumes modest growth of 0.7% of the current-year forecast, which we view as an improvement in forecasting. On the appropriations side, although growth over fiscal 2022 is small, we note that the proposed budget includes growth of nearly 30% over 2019 levels. This is in part from inclusion of the full ADC for New Jersey's poorly funded pension plans, as well as increased K-12 school aid, among other programs. The budget also promotes tax relief for New Jersey residents in the form an expanded property tax relief program funded at nearly $900 million in the proposed budget, or 1.8% of appropriations. In addition, the governor's budget includes a "fee holiday" for one year, which we do not expect to have a material effect on the state's finances. Reserve levels are forecast to improve at the end of fiscal 2022 even after an additional $1.3 billion deposit into the state's debt defeasance and avoidance fund, although we anticipate some will be used in the fiscal 2023 budget. New Jersey expects ending reserves to be at 8.6% of appropriations at fiscal year-end 2023, a material improvement over historical levels closer to 4% or less.

New Mexico

The enacted fiscal 2023 budget estimates a 7.9% increase in recurring revenue and a slight drawdown in total general fund balances, including the tax stabilization fund, with a total general fund balance of $2.3 billion or a strong 27.7% of recurring general fund appropriations, down from an estimated 33.4% at fiscal year-end 2022. The tax stabilization fund alone will remain relatively constant at $1.74 billion or 20.4% of recurring appropriations, down from 23.7% in fiscal 2022 and 25.6% in fiscal 2021. Historically, about one-third of New Mexico's general fund revenue derives from oil and gas production; about half from direct severance taxes and mineral rents and royalties deposited in the general fund; and about half indirectly from gross receipts taxes on oil and gas activity, which we see as a volatile revenue source.

New York

New York's enacted state budget based on preliminary estimates totals $120 billion among state operating funds, which is higher than the governor's proposal (see, "New York State’s 2023 Executive Budget: A Surge In Unexpected Revenues Eliminates Outyear Gaps," Feb. 15, 2022). The budget relies on the surge of tax revenues and federal aid to fund nonrecurring expenses. However, it also includes significant increases in education and Medicaid spending. Available reserves (rainy-day and economic uncertainties) are expected to increase by $5.1 billion or 14.4% of general fund disbursements. The budget includes accelerated tax relief to middle-class earners through reduced tax rates and temporary suspension of 16 cents of state gas tax from June 1, 2022, through Dec. 31, 2022.

North Carolina

The governor signed North Carolina's general fund budget for fiscal 2021-2023 on Nov. 18, 2021, about four-and-a-half months past the start of the biennium. The enacted budget, which is the first agreed-upon spending plan since fiscal 2018, totals $26 billion for fiscal 2022 and nearly $27 billion for fiscal 2023 after accounting for technical corrections to the original budget. We understand that while a late budget is not uncommon for North Carolina, the state has historically put actions, including continuing resolutions, into place to ensure continued operations in the absence of an enacted spending bill. Key spending priorities for the fiscal 2021-2023 biennium include broadband internet access, higher education funding, and various infrastructure projects. The budget makes substantial changes to the state's tax laws over the next decade including phasing the income tax rate to 3.99% (from 5.25%) by 2027 and repealing the corporate income tax rate over six years beginning in 2025, among others. Officials expect the general fund impact, on a cumulative basis, will be $1.33 billion in fiscal 2022 and $1.99 billion in fiscal 2023, which represents a notable, in our view, 5.1% and 7.4% of annual general fund expenditures, respectively. The state's savings reserve--informally known as the rainy-day fund--is projected to have a balance of $3.12 billion in fiscal 2022 (12.0% of fiscal 2022 general fund expenditures, which we consider strong) and $4.25 billion in fiscal 2023 (15.8% of fiscal 2023 expenditures, which we consider strong).

North Dakota

The state legislature adopted North Dakota's biennial budget ending fiscal 2023, in 2021. As adopted, the budget increased ongoing general funding by a little over 1.8%. All-funds appropriations increased slightly more than 15% relative to the preceding biennium. Biennium to-date revenues are up approximately 13%, relative to forecast, spurred in part by stronger-than-estimated sales, corporate, and incomes tax collections. When adopted, reserves (including general, budgetary stabilization, and strategic investments and improvements funds) were forecast to total more than 41% of appropriations by the end of the current biennium (as estimated by the Legislative Council staff as of May 21, 2021).


Ohio has not revised its fiscal 2022-2023 biennium budget. The GRF agency appropriations plan remains $34.9 billion (or a 2.0% year-over-year decrease) for fiscal 2022 and $39.3 billion (12.6% year-over-year increase) for fiscal 2023. Although the enacted budget includes cuts to PIT rates, the state reports its budget is likely to sustain at least structural balance over the biennium as total GRF receipts exceed fiscal year-to-date budgeted estimates by approximately, $2.9 billion (or 11%) through March 2022. The state made a one-time $1.2 billion ending balance transfer from the fiscal 2021 surplus to a non-GRF Medicaid cash fund in the current biennium; Ohio expects to use the cash fund to manage potential increases to state-shared Medicaid spending that may no longer be offset by higher federal reimbursement rates should the national public health emergency expire before the end of the current biennium. Ohio also maintains $2.69 billion in its BSF, or approximately 7.7% of fiscal 2022 general fund expenditures, and it has a statutory set-aside requirement to maintain 0.5% of previous-year revenue (or $197.7 million as of June 30, 2021), which in our view afford the state a degree of flexibility to navigate changes in the current biennium.


On Jan. 31, 2022, Oklahoma's governor released his executive budget recommendation for fiscal 2023, reducing total budget appropriations to $8.86 billion, or a net $204.4 million (or 2.3%) below the current year's budget. Following the release of the executive budget proposal, Oklahoma's Board of Equalization certified the state's general revenue at $7.74 billion, and $7.35 billion in appropriation authority for all certified funds (at 95% of projected general revenues) for fiscal 2023, which reflects a $784.9 million (or 11.9%) increase compared with appropriation authority for the current fiscal year. This upward revision primarily reflects continuing improvement of state economic activity and higher oil and gas prices that have spurred substantial growth in gross production, sales, and use tax collections. The executive budget proposal also expressed support for additional tax cut measures to reduce or phase out the individual income and corporate incomes tax and the state's sales tax on grocery items. Although subject to change, the estimated effect of some legislative tax policy proposals under consideration could reduce revenue collections to $422 million from $283 million for fiscal 2023. On a combined basis, the executive budget estimates revenue growth and essentially flat spending could increase the state's carryforward of unspent general revenue and reserves to $2.3 billion, or nearly 26% of total budget appropriations--from the approximately $1.83 billion at present--by the end of fiscal 2023.


Oregon's enacted budget for the fiscal 2021-2023 biennium totaled $26.8 billion for the combined general fund and lottery funds at the close of the 2021 Legislative Session, which represented 12.1% growth from approved spending levels for the previous 2019-2021 biennium. The largest appropriation categories support K-12 education (32% of the budget) and human services (30%). The state's latest revenue forecast, as of March 2022, raised current biennium revenue projections for both the general and lottery funds. The overall increase compared with the enacted budget's close of session forecast was $1.6 billion (6.9%) for the general fund and $84.4 million (5.1%) for the lottery funds, due in part to strong forecast household finances. The state's 2022 short session, which adjourned on March 4, 2022, modified the enacted budget by allocating additional funds for various initiatives including for education and housing. The adjustments increased the fiscal 2021-2023 biennium total to $29.3 billion for combined general fund and lottery funds, representing a 22.6% increase in growth from approved spending levels for the 2019-2021 biennium. The state anticipates its rainy-day fund and education stability fund reserves at the end of the biennium will total $2.0 billion, which we calculate is a very strong 15.0% of annual net general fund and lottery fund revenues projected for fiscal 2022.


The governor's executive general fund budget proposal for fiscal 2023 totals $43.7 billion, representing a sizable, in our view, $6.2 billion (16.6%) increase in spending over the current fiscal year. About a third ($2.2 billion) of this uptick in spending is for projects funded by remaining ARPA funds. Excluding $2.2 billion of expenditures related to ARPA, general fund expenditure growth of 10.8% is better aligned, albeit still higher, than the proposal's anticipated revenue growth of 7.2%. Other key spending initiatives include basic education funding and raising the minimum wage. Although the proposal assumes that lowering the corporate net income tax rate over time (gradually over the next decade from the current level of 9.99% to ultimately reach 4.99%) while expanding its tax base will have a minimal, in our opinion, general fund effect of negative $79 million (0.2%) in fiscal 2023, it is projected to result in a larger, albeit moderate, impact over time. The commonwealth's Independent Fiscal Office projects the change would eventually lead to a negative $967 million general fund impact on the general fund budget in fiscal 2027, representing 2.1% of the governor's estimated expenditures for fiscal 2027. In previous budget cycles, similar modifications to the corporate net income tax were proposed, in addition to PIT changes, but did not pass the legislature. The governor's budget maintains the rainy-day fund balance at $2.9 billion, which we consider good at 6.6% of proposed fiscal 2023 general fund expenditures.

Rhode Island

On Jan. 20, 2022, Rhode Island's governor released his fiscal 2023 budget recommendation, including a GRF budget spending plan totaling $4.73 billion, a $180.5 million increase (or 4%) in operating appropriations compared with the fiscal 2022 enacted budget. The state also projects a $339.7 million, or 7.7%, increase in net general revenue compared with the fiscal 2022 enacted budget, including Rhode Island's anticipated $135.5 million carried forward surplus. The state estimates to begin fiscal 2023 with approximately $244.3 million or 5.2% of general expenses in its budget reserve and cash stabilization account, an increase of $9.7 million compared with the start of the current fiscal year, and in alignment with its 5% statutory reserve target. The state budget proposal also seeks bonding authorization for the following purposes: K-12 school construction ($250 million), higher education ($62 million), and green economy ($38 million).

South Carolina

The governor's $10.06 billion spending recommendation for fiscal 2023 marks a notable increase of 8.5% over fiscal 2022. It includes a phased-in 1% reduction on PIT rates over five years (also included but not passed in the previous four executive budget proposals), starting with an immediate $177 million cut. Individual income taxes made up $5.4 billion, or 48.9% of fiscal 2021 revenue. Also, as in fiscal 2022, it includes an additional $500 million to South Carolina's rainy-day reserve account, which would increase its balance to 10% of the general fund budget, and proposes the General Assembly ensure that the balance is maintained at no less than 10%. Fiscal 2022 cumulative general fund revenue collections through March 2022 have trended favorably and are up 21.8% year-over-year. Provided strong revenue trends, the Board of Economic Advisors revised its baseline general revenue forecast in February 2022 to reflect an additional $921 million of gross revenue in 2022 and $621 million in 2023 than assumed in its estimates provided in November 2021. The budget also dedicates remaining ARPA funds, including a $1.26 billion plan to fund Department of Transportation infrastructure projects--funded with a 50/50 split of ARPA funds and surplus revenues. Budget debates are expected to continue into May before going to the governor for final approval.

South Dakota

The fiscal 2023 budget approved by the legislature is structurally balanced, with estimates that fiscal years 2022 and 2023 will end with a reserve balance of $307.1 million, or a very strong 14.9% of approved fiscal 2023 general appropriations. The $2.06 billion fiscal 2023 budget increases spending by $243.0 million (13.4%) over fiscal 2022. Most notably, $104.3 million of the increase will provide a 6% wage inflation adjustment for education, health care, and state employees. In addition, $86.6 million will be transferred to the incarceration construction fund in fiscal years 2022 and 2023. The budget also includes appropriations for the majority of the $974.4 million of ARPA funds the state was granted by the federal government. The most significant use of these funds is $600 million for clean water projects. In February 2022, total fiscal 2022 receipts were adopted at $2.18 billion, up 2.64% from the initial forecast, and fiscal 2023 was increased by 4.57% to $2.07 billion.


Tennessee's legislature is in session and working through its next budget. The governor's proposed budget reflects a modest 2.5% increase compared with the state's fiscal 2022 budget although general fund appropriations would grow nearly 16% if adopted as proposed. The increase in general fund spending is attributable to a targeted increase in public education (K-12 and higher education) as well as increases in transportation and infrastructure spending. Reserves are again anticipated to rise to $1.8 billion or a little more than 9% of general fund appropriations.


Texas general revenue-related funds for the biennium (2022-2023) are estimated to total $135.3 billion, supporting $123.3 billion in general purpose spending, leaving a nearly $12 billion balance or 9.6% of authorized spending. The all-funds budget for the biennium is 2% smaller than the preceding biennial largely reflecting a decline in health and human services expenditures (10.7% decline). The comptroller of public accounts reports that for fiscal 2022, total general revenues are up approximately 34% compared with fiscal 2021 (excluding federal and CARES Act coronavirus relief funds). The state's leading revenue source--sales tax--is up nearly 24% for the fiscal year. Relative to its forecast, sales taxes are up a very strong 22%, or $3.67 billion. Not accounting for potential changes in legislation (the next legislative session), the ending balance in the state's economic stabilization fund totals approximately $12.62 billion by biennium end (fiscal 2023), or almost 21% of general revenue appropriations (average annual), levels we view as very strong.


Utah's enacted general fund, education fund, and uniform school fund budget for fiscal 2023 totals approximately $11.6 billion, a $1.86 billion (19.0%) increase over the state's $9.8 billion budget enacted for fiscal 2022. The uptick in spending--which is primarily intended for education, water conservation, and various construction projects--is supported in part by the state's latest revenue forecast. Specifically, the February 2022 forecast increases fiscal 2023 ongoing and one-time revenues by $383 million and $432 million, respectively. Furthermore, the state is allocating approximately $806 million of additional unspent funds received from the ARPA. While the budget reduces the individual and corporate income tax rate from 4.95% to 4.85%, we believe the projected budgetary impact of $163.7 million is relatively minimal at 1.6% of budget. Utah's combined rainy-day fund balance total is expected to be approximately $1.14 billion at the close of fiscal 2023, or what we view as a very strong 9.8% of budget. The budget continues the state's recent trend of minimizing bonding by cash financing its capital projects, which we expect will keep Utah's debt burden low.


Vermont's house passed, and the state senate made progressing toward passing, its own version of Vermont's fiscal 2023 budget. The house version of the budget increases funding for education and human services, and funds various initiatives including a climate action package. Once the senate passes its version of the budget, the legislature will convene a budget conference committee before agreeing on a final budget to send to the governor. The fiscal 2023 executive budget totals $2.0 billion for the general fund and $1.9 billion for the education fund, for a combined $3.9 billion for Vermont's main operating funds. The proposal, which is essentially flat from the governor's recommended adjustments to fiscal 2022 spending levels, fully funds the state's pension plans at actuarially determined employer contribution levels. The legislature is discussing a bill to enact a task force's recommendations to reduce the state's pension liabilities over time; the state estimates the law would reduce Vermont's future liabilities by about $2.0 billion. The governor's budget increases the budget stabilization reserve of $105.7 million (a 21.4% increase) while maintaining the state's rainy-day fund at $80.4 million and increasing the education fund stabilization reserve to $42.2 million for a combined $228.3 million or a good 5.8% of combined general fund and education fund expenditures for fiscal 2023. The state has additional reserve accounts, which are restricted as to their use.


The original general fund operational budget proposal totaled a cumulative $58 billion in spending for fiscal years 2023-2024, which included baseline spending growth as well as one-time spending measures. However, the Virginia General Assembly adjourned without a final budget on March 12, 2022, and recessed after reconvening in a special session on April 4, to negotiate details of the next biennium budget and deliberate on various tax-relief initiatives. The proposed tax relief initiative includes eliminating the grocery tax, doubling the standard deductions for income taxes, deferring scheduled gas tax increases, eliminating taxes on a portion of veterans' retirement income, and one-time rebates. Based on previous fiscal impact studies, we calculate various tax relief initiatives combined could represent about 8% of baseline general fund revenue. A subsequent proposal to provide a three-month state gas tax holiday is not included in these estimates. Other spending proposals left to reconcile include K-12 school funding increases, teacher and state employee pay increases, and higher education spending. The original executive budget proposed combined revenue reserve and revenue stabilization fund balances that would approach a strong 13% of proposed spending; however, final biennium budget details and projected fund balance levels will depend on budget resolution between the General Assembly and the governor. Lawmakers return for the veto session on April 27; however, budget deliberations could extend beyond that date.


Washington's enacted supplemental budget for the fiscal 2021-2023 biennium totals $64.1 billion for the state's near general fund accounts (general fund, education legacy trust account, opportunity pathways account, and workforce education investment account). This represents an increase of $5.1 billion (8.7%) over the initial budget for the ongoing biennium and $11.6 billion (19.7%) over the budget for the fiscal 2019-2021 biennium. Key spending priorities include initiatives related to homelessness, poverty, and environmental issues in addition to further education spending related to the COVID-19 pandemic. The supplemental budget is supported by Washington's February 2022 revenue forecast, which totals $60.2 billion and incorporates significant, in our view, revenue growth of 10.7% over the March 2021 forecast used for the initial biennium budget. The supplemental budget makes up for $3.4 billion revenue gap by utilizing the beginning fund balance. In our view, we believe the $222 million forecast biennial ending balance alongside projections for $609 million in rainy-day funds and $2.1 billion in a newly created reserve account called the Washington Rescue Plan Transition Account provide budgetary cushion at a combined 8.5% of annual near general fund expenditures for fiscal 2023.

West Virginia

The governor signed the legislatively enrolled budget for fiscal 2023 in March 2022 with one line-item veto related to a request to set aside $265 million for future tax reductions. The $4.65 billion budget is essentially flat from 2022, increasing spending by only 1.4%, and was based on a conservative fiscal 2023 revenue estimate equal to the proposed budget. The largest spending increase relates to an average annualized 5% pay raise, capped at $2,550 per employee that is expected to cost approximately $108 million. West Virginia's most recent revenue report shows that actual general fund revenue through the nine months ended March 31, 2022, of $3.97 billion is $740 million above estimates and will likely generate a large surplus at year-end. The state maintains two revenue shortfall reserve funds totaling $1.03 billion (as of December 2021) or a very strong, in our view, 23% of fiscal 2022 appropriations. We expect reserves will remain very strong in fiscal 2023 provided the flat budget conservative revenue estimates.


The state is in the first year of its fiscal 2022-2023 biennium, and its overall financial position has held steady. In January 2022, Wisconsin's Legislative Fiscal Bureau (LFB) published its revisions to the projected general fund condition statement through the end of the fiscal 2022-2023 biennium, which, in our view, serves as an important budget planning tool for the state. This updated analysis includes Wisconsin's revised economic forecast and the examination of tax collection and expenditure data during the current fiscal year. Based on these revised assumptions, the LFB estimates a $2.51 billion increase in estimated tax collections and the net general fund balance will increase $3.8 billion at the end of the biennium, or approximately $2.88 billion above the projected balance in the enacted 2022-2023 biennial budget. Absent any tail risks that materialize in the current biennium, we believe the state will maintain $1.73 billion, or approximately 9.4% of general-purpose fund expenditures in its BSF of fiscal 2023 general fund expenditures, which we believe provides a significant financial cushion, if necessary, to close out-year structural gaps.


Rising oil and gas prices have lifted Wyoming's budget outlook, following previous years of declining fund balances due to lower oil and gas prices and declining coal production. The state does not have an income tax, but has a significant dependence on coal-, oil-, and gas mining-related revenue. In March 2022, Wyoming adopted a new two-year fiscal 2023-2024 biennium budget. The adopted budget reduces state government appropriations due to the assistance of federal funds and state support for schools because of increased local revenues compared with the previous biennium. Projected reserves will be maintained at high levels, near those estimated for the end of the fiscal 2019-2020 biennium. Combined budget reserve account, legislative stabilization reserve account, general fund, and school foundation program balances at June 30, 2024, are forecast to be $1.65 billion, or 72% of combined budgeted general fund and school foundation program biennium appropriations on an annualized basis. If oil and gas prices stay at currently elevated levels, state revenues could exceed expectations.

Related Research

This report does not constitute a rating action.

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