Report: Slowdowns in state spending lead to difficult choices
|Fund source||Fiscal year 2014||Fiscal year 2015||Fiscal year 2016|
|State funding sources||4.1%||5.5%||3.1%|
|Federal funding sources||3.4%||10.4%||5.8%|
|Total state expenditures||3.8%||6.9%||4.0%|
Even so, the Report asserts, despite the slowdown of state spending, all program areas saw “at least a small increase in spending” between fiscal year 2014-15 and 2015-16. The data reflects the percentage changes in the major spending categories during these periods as follows:
|Spending category||Fiscal year 2014-15||Fiscal year 2015-16|
|Elementary and secondary education||5.2%||2.6%|
| All other (includes the Children’s Health Insurance
Program, institutional and community care for the
mentally ill and developmentally disabled, public
health programs, some employer contributions to
pensions and health benefits, economic development,
environmental projects, state police, parks and
recreation, housing, and general aid to local governments)
In an article addressing the Report, the Hill pointed out that the modest growth that it addresses is sparking fears of recession beyond the few jurisdictions we considered earlier this month, Ohio, Florida, Illinois, all of which are in precarious fiscal situations.
States were forced to cut a total of $2.8 billion out of their budgets in the last fiscal year, and more states are likely to face cash flow crunches in upcoming legislative sessions. Seventeen states implemented cuts to their K-12 education programs, and  states cut public assistance programs.
Energy-producing states like Alaska, Louisiana, New Mexico, North Dakota, Oklahoma and Wyoming were particularly hard-hit, as falling global commodity prices caused extraction tax revenues to tumble. Among the 12 states that saw revenues decline in 2016, nine are major energy producers.
Tax policy predictions for 2017
- Reduced Taxation of Capital: There is an emerging consensus that these taxes impede economic growth and are ill-suited to the modern economy;
- Lower Income Taxes but Higher Sales Taxes: Since 2008, 15 states and the District of Columbia have adopted individual income tax cuts, and 15 states and the District of Columbia have reduced corporate income taxes. But over the past 18 months, several others, such as Kansas, Louisiana, and South Dakota, have raised sales tax rates;
- The Erosion of Corporate Income Tax Bases: This has reduced states’ reliance on this revenue source and forced consideration of alternatives. For example, Ohio, Texas, and Nevada have all adapted a Gross Receipts Tax in recent years;
- Fewer Estate and Inheritance Taxes: Just 12 states and the District of Columbia still impose the estate tax, and only four have inheritance taxes. Only two states, Maryland and New Jersey, currently have both, but by January 2018, New Jersey’s estate tax will be fully phase out;
- Growing Utilization of Triggers and Phase-Ins: The Tax Foundation opines that revenue triggers may become the default mechanism by which states implement tax reform.