My friend Chris Edwards has done an exhaustive analysis of the trends in state spending, and the performance of the governors of each state. Apart from his ranking of the governors, what struck me in his report “FISCAL POLICY REPORT CARD ON AMERICA’S GOVERNORS 2016,” was the frightening trend of increased spending in state budgets. Edwards writes:
Figure 1 shows state general fund spending since 2000, based on data from the National Association of State Budget Officers.2 Spending soared between 2002 and 2008, and then it fell during the recession as states trimmed their budgets.3 Spending has bounced back strongly in recent years, growing 4.1 percent in 2013, 4.6 percent in 2014, 4.1 percent in 2015, 5.6 percent in 2016, and a projected 2.5 percent in 2017.
A key driver of state spending growth is Medicaid. This giant program pays for health care and long-term care for 67 million people with moderate incomes.4 The program is funded jointly by federal and state taxpayers. It is the largest component of state budgets, accounting for 26 percent of total spending.5
Medicaid has grown rapidly for years, and the Affordable Care Act of 2010 (ACA) expanded it even more.6 For states that implement the ACA’s expanded Medicaid coverage, the federal government is paying 100 percent of the costs of through 2016, and then a declining share after that. As the federal cost share declines, state budgets will be put under more stress. But aside from the federal portion of Medicaid, the state-funded portion of the program is also growing quickly and stressing budgets. State-funded Medicaid spending grew 6.0 percent in 2015 and an estimated 8.3 percent in 2016.7
On the revenue side of state budgets, policymakers have been enacting a mix of tax cuts and tax increases. Overall, the states enacted a modest net tax cut in 2014 and 2015, but they swung to a net tax increase in 2016.8 Cigarette tax increases have been common, with a dozen states enacting them since 2014.9 Gasoline tax increases have also been common, with about half the states enacting them since 2013.10
There is also a trend toward reductions in individual and corporate income tax rates. There have been substantial rate cuts in Arizona, Indiana, Kansas, Maine, New Mexico, New York, North Carolina, North Dakota, Ohio, and Oklahoma in recent years. In some states, the revenues from income tax cuts have been partly offset with revenue increases from higher retail sales taxes.