State fiscal reserves are high now

Growth in State Budgets and Reserves Remain Strong After Two Years of Record-Breaking Increases and Surpluses State fiscal conditions remain strong in fiscal 2023, following record-breaking increases in general fund revenue in fiscal 2021 and spending in fiscal 2022. Enacted budgets for fiscal 2023 provide for a 6.7 percent increase in general fund spending compared to preliminary actual levels for fiscal 2022. This follows 18.3 percent spending growth in fiscal 2022, the highest annual spending increase ever recorded in the Fiscal Survey of States since its inception in 1979. Adjusted for inflation, general fund spending grew 9.6 percent in fiscal 2022.

States saw two consecutive years of double-digit percentage revenue growth and collections far exceeding budget forecasts in fiscal 2021 and fiscal 2022. States experienced annual general fund revenue growth of 16.6 percent in fiscal 2021, the highest annual revenue increase in the history of the Fiscal Survey, followed by 14.5 percent in fiscal 2022. Adjusted for inflation, general fund revenue grew 12.7 percent in fiscal 2021 and 5.8 percent in fiscal 2022.

Revenue projections in enacted budgets for fiscal 2023 are 3.1 percent lower than preliminary actual collections for fiscal 2022. However, this decline is largely attributable to differences in timing of fiscal 2022 figures and fiscal 2023 estimates. More recent collections data for fiscal 2023 suggest that general fund revenues will continue to grow year-over-year, albeit at a slower rate compared to the rapid growth observed the past two years. Thirty-three states already reported revenues exceeding original budget forecasts for fiscal 2023 in this survey.

Rainy day funds reached new heights in fiscal 2022, after already growing 58 percent in fiscal 2021, and are projected to increase further in fiscal 2023. Total balances (including general fund ending balances plus the amounts in states’ rainy day funds) have seen tremendous growth over the past two years, roughly tripling in size from fiscal 2020 to fiscal 2022. According to enacted budgets, states plan to spend down some of these prior-year balances in fiscal 2023, including on one-time uses such as paying off debt, supplemental pension payments, capital construction, economic development, and other expenditures to strengthen their fiscal resiliency over the longer term.