JEFFERSON CITY, Mo. (AP) — State governments emerging from the coronavirus pandemic have amassed record money surpluses as value and wage inflation boosted sales and the source of income taxes .
Now, many states are reaping rewards: pulling millions of dollars out of those surpluses while the Federal Reserve fights inflation with higher interest rates.
“We’re coming to an end,” said Missouri Treasurer Scott Fitzpatrick, a Republican.
First, “we make a lot of extra money,” he said. Now, nominally, we are reaping benefits from the Federal Reserve’s interest rate hike. “
Missouri is not alone. States ranging from Democratic-led Massachusetts to Republican-led Texas and politically divided Minnesota have giant surpluses that rise further thanks to favorable interest rates on investments.
As legislatures prepare for their 2023 sessions, governors and lawmakers are proposing to leverage surpluses to cover tax cuts and increased spending on priorities like infrastructure and education. The United States may fall into a recession.
“That’s a component of what I call top sugar,” said Phil Dean, a lead economist and public finance researcher at the University of Utah’s Gardner Policy Institute. “Growth rates are not sustainable. “
California may just be a harbinger of economic trends. After projecting an unprecedented $97 billion surplus just seven months ago, government officials now project a deficit of around $25 billion in the next budget. California imposes higher taxes on peak states, causing pendulum-type fluctuations in tax revenues as the inventory market rises and falls.
State budgets have been through unusually dubious times since the coronavirus pandemic began in early 2020. As governors ordered shutdowns in a bid to slow the spread of the virus, layoffs skyrocketed and states braced for massive profit losses. People’s pockets, hard labor markets recovered, and the deep recession was short-lived.
State tax revenues have exceeded expectations. After consecutive years of double-digit percentage profit growth, states ended their 2022 fiscal years with a record monetary balance of nearly $343 billion, according to the National Association of State Budget Officers.
“Budgets are strong, traditionally strong,” said Tim Storey, executive director of the National Conference of State Legislatures, as he announced upcoming legislative sessions.
Large surpluses have put states in a position to take advantage of this, as the Federal Reserve raised its benchmark interest rate seven times last year, making more loans in an effort to reduce spending and fight inflation.
Texas had projected a $27 billion surplus for its current budget, driven through sales taxes and energy profits. It is expected to succeed at more than $30 billion when a revised earnings estimate is released in January, said Tom Currah, deputy assistant comptroller for tax affairs. This is a surplus larger than the annual general fund expenditures of 40 other states.
Republican Gov. Greg Abbott promised in his re-election crusade that part of the surplus would go to asset tax relief.
The accumulation of tax revenue in Massachusetts this year triggered a rarely used state law requiring $2. 9 billion to be returned to taxpayers. Large balances of money allowed the government to raise nearly $57 million in interest in October alone, six times the amount earned in the full year 2021.
Minnesota forecasts a record $17. 6 billion surplus for the next budget. A strong economy, with one of the lowest unemployment rates in the country, has pushed non-government revenues, sales and corporate taxes above expectations. The political stalemate contributed to the swelling of the coffers, as the Republican-controlled Senate and the Democratic-led House were unable to agree on how to use all the additional money.
Thanks to higher interest rates on the massive surplus, Minnesota expects an investment revenue source of $428 million this fiscal year, a whopping 1,427% accumulation over an earlier estimate.
The Democrats who won the fall election will occupy the entirety of Minnesota’s government in 2023. Tim Walz said the surplus can only be used to achieve tax cuts, increase investment in education, improve infrastructure and charge charging stations for electric vehicles.
“We can do all those things. It’s a choice between one or the other,” Walz said.
Virginia finance officials expect the country to fall into a recession in 2023, which will affect the state’s tax revenues. However, the state has so much extra cash that Republican Gov. Glenn Youngkin recently proposed an additional $1 billion in tax cuts and $2. 6 billion in spending. on education, economic development, public safety, behavioral health, and the environment.
“Our state government’s monetary position has never been stronger,” Youngkin said.
Citing a giant surplus, Missouri Gov. Mike Parson called lawmakers to a special fall referendum to approve what he described as “the largest tax cut in state history. “The first tier of the potential $760 million tax cut will take effect in January. However, Missouri still expects to end its 2023 fiscal year with a surplus, leaving cash to spend on things like instructor pay increases.
In the first five months of its fiscal year, Missouri already earned $116 million on its investments, nearly double the profits of all of last year. But Fitzpatrick, the treasurer, advises decision-makers to be cautious.
“Even though we’re making a lot of money, inflation is outpacing what we can do with our money,” said Fitzpatrick, who will take over as state auditor-elect on Jan. 9. He added: “We want to be careful not to devote the state to a lot of new ongoing spending.
The Pennsylvania Treasury is expected to collect $275 million in interest this fiscal year, thirteen times the average amount over the past five years. Although they make up only a fraction of the overall state budget, interest income would be large enough to operate any of the state’s Cabinet agencies for a full year, with the exception of education, social, and corrections.
Republican Treasurer Stacy Garrity’s budget writers put the extra cash in reserve and noted that an independent budget firm projects a deficit of more than a billion dollars for the 2023-24 fiscal year.
“We know that a fiscal cliff is coming, and that is that the Commonwealth is preparing as much as possible,” he said from the Garrity workplace.
Some other states are also making plans for tougher times.
According to a recently revised earnings forecast, Oregon expects to earn $190 million in interest in the existing budget cycle, nearly double the amount expected 3 months earlier. The state expects a $4 billion surplus this year. But state fiscal analysts also expect a mild recession in 2023 that may turn the surplus into a $560 million budget deficit over the next two years.
“The sharp rise in interest rates this year is like taking your foot off the gas and stepping on it. The car will shake, skid and even sneak in,” said a report from the Oregon Bureau of Economic Analysis. is it whether it ends up in the ditch or is it the driving force to get out of it?”
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Associated Press editors Steve LeBlanc in Boston; Steve Karnowski in St. Paul, Minnesota; Marc Levy in Harrisburg, Pennsylvania; Sarah Rankin in Richmond, Virginia; and Claire Rush in Portland, Oregon, contributed to this report. Rush is a member of the Associated Press/Report for America Statehouse News Initiative. Report for America is a nonprofit national service program that puts bloodhounds in local newsrooms to report on covert issues. .