State Budgets

States Face Fiscal Reckoning: Jonathan Williams & Lee Schalk on ALEC Breakdown

As 46 States Enter New Fiscal Year, Prudent Spending and Tax Strategies can help Avoid Economic Pitfalls

Jonathan Williams, ALEC Executive Vice President of Policy and Chief Economist, and Lee Schalk, ALEC Vice President of Policy, recently examined the start of the new fiscal year. A crucial period for most U.S. states, with 46 beginning their new fiscal year on July 1st, this marks the end of one budget season and the beginning of another.

Looking back, the pandemic significantly impacted state revenues as many experienced record surpluses from federal aid. However, state revenues have begun to flatten, bringing new challenges.

From Surplus to Deficit: California’s Budget Roller Coaster

What not to do as a state is replicate California. They went from Governor Gavin Newsom going around the country saying Progressive governance works – we have $100 billion surplus! Fast forward to this January, and now they’re debating how big their deficit is. Some are saying there is upwards of $70 billion in budget shortfalls after touting a $100 billion surplus reported a year ago. -Jonathan Williams

California serves as a cautionary tale, having gone from a substantial surplus to a significant deficit in a short time. This shift highlights the dangers of over-reliance on volatile revenue sources like progressive income taxes. The state’s recent budgetary struggles illustrate the need for fiscal discipline and prudent management of resources.

Conversely, states like Florida and Utah provide examples of sound fiscal management. Florida recently reduced its spending and continued to cut taxes, demonstrating a commitment to efficient government and fiscal responsibility. Utah’s proactive approach to budgeting, including its Financial Ready Plan, prepares the state for potential reductions in federal aid, showcasing forward-thinking financial planning.

Priority Based Budgeting: A Path to Fiscal Responsibility

The importance of priority based budgeting cannot be ignored. This approach contrasts with the incremental budgeting method, where new budgets are built on the previous year’s spending, often without thorough evaluation of the effectiveness of programs.

Our State Budget Reform Toolkit examines how states can get back to basics. You don’t always have all the money you want. Seth Grove, the Republican lead on appropriations in the Pennsylvania House, has been working long hours to make sure they employ more of a reality-based budget. -Jonathan Williams

The adoption of principles from ALEC’s State Budget Reform Toolkit and other model policies can help legislators make informed decisions that prioritize essential services and long-term fiscal health.

As states embark on a new fiscal year, legislators should implement budget strategies that ensure economic stability and growth.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

+ State Budgets In Depth