State budgets are expanding now, they eat up reserves

Spending Continues to Grow in Fiscal 2023 Budgets Following Largest Ever Increase in Fiscal 2022 Enacted budgets call for general fund spending totaling $1.16 trillion in fiscal 2023, a 6.7 percent increase over preliminary actual spending levels for fiscal 2022. This increase follows rapid spending growth in fiscal 2022, when general fund spending increased 18.3 percent – the highest growth rate ever recorded in the Fiscal Survey of States. Overall, 40 states are projecting general fund spending increases in fiscal 2023, while 10 states are forecasting declines. Fiscal 2023 budgets that states reported on in this survey were enacted as early as spring 2021 for some biennial states and as late as summer 2022. Upward revisions to revenue forecasts since budget enactment may increase spending levels for fiscal 2023.

Based on preliminary actual data (as well as estimates for some states), general fund spending totaled $1.08 trillion in fiscal 2022, an 18.3 percent increase over fiscal 2021 levels. This steep increase is driven by a number of factors, including the high rate of inflation; states spending down surplus funds from fiscal 2021 (and fiscal 2022) on one-time investments; a shift from a reliance on federal funds to general funds in certain areas; a lower baseline in fiscal 2021, when some states made budget cuts in anticipation of revenue shortfalls; and the inclusion of federal COVID-19 funds in expenditure amounts for a few states. Adjusted for inflation, general fund spending in fiscal 2022 grew 9.6 percent.1 (See Figure 1.)

Enacted Budgets for Fiscal 2023 Call for Significant Increases in Nearly All Program Areas Enacted budgets for fiscal 2023 provided for $113.9 billion in additional general fund appropriations compared to enacted levels in fiscal 2022. This is greater than the already sizeable increases projected in governors’ proposed budgets for fiscal 2023, as reported on in NASBO’s Spring 2022 Fiscal Survey. Similar to what transpired last year, enacted budgets for fiscal 2023 ended up being considerably larger than what governors proposed, thanks to upward revisions in revenue projections. (See Figure 2.)

All program areas would see substantial net increases in general fund appropriations according to enacted budgets for fiscal 2023 except transportation, a program area that is primarily funded by special fund sources outside of the general fund. The “all other” category received the largest net increase, followed by Medicaid and then K-12 education as the second and third largest recipients of new funds, respectively. Some states provided further detail on enacted appropriation changes in the “all other” category, including both recurring and nonrecurring investments in areas such as disaster response, housing and homelessness, public health and human services, environmental protection, economic development, and information technology. Other one-time expenditures reported in this category and supported largely with surplus funds include supplemental pension payments, deposits to rainy day funds, paying down debt, and capital construction projects.