2014 trends in state and local finance

From Governing:

This might be as good as it gets.

Two state and local governmental organizations recently released annual reports on government financial health. They both essentially came to the same conclusion: Many governments are past the immediate pains of the recession but are now feeling the duller aches of the slow-growth economy. The National League of Cities’ City Fiscal Conditions Survey found that cities made some key gains in fiscal year 2014 although many still can’t claim a full recovery from the recession. Mainly, they have started to make up for areas where there were spending cutbacks during the downturn and they are increasing their reserve funds. And the overall positive figures are widespread — 80 percent of city finance officers reported improved fiscal conditions this year, the highest such number in the 29-year history of the survey.

The National Association of State Budget Officers also released its year-end report on the health of state finances. That analysis found state spending is increasing for the fifth straight year but growth continues to be minimal and the competition for limited dollars remains fierce. That’s because much of the projected 3.1 percent spending increase will be gobbled up by rising costs in education and Medicaid, leaving little money available for spending in other areas. Additionally, in no year since the recession has spending growth matched the nearly four-decade average of 5.5 percent. Even more alarming: This year’s total general fund spending of $748 billion is still 2 percent below the pre-recession peak, after accounting for inflation. “If we continue to see this for another two to three fiscal years,” said Scott Pattison at the report’s release, “we have to assume we are in a new economic era…this ‘new normal’ that economists talk about.”