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Why Tighter Budgets Might Be Better for States in the Long Run: Jonathan Williams and Lee Schalk in Governing Magazine

States have been awash with cash in recent years. Those that didn’t make spending increases permanent are now in better shape.

Jonathan Williams, ALEC Chief Economist and Executive Vice President of Policy, and Lee Schalk, ALEC Vice President of Policy, recently co-authored an op-ed in Governing about how state budgets are returning to normal following the pandemic’s revenue boom and federal aid. In addition, they highlight how states that prioritized fiscal responsibility can lead to long term growth.

In general, fiscal conditions this year represent a return to normal, following the boom years after the COVID-19 pandemic and the largesse of federal aid to states. In 2021 and 2022, many states experienced double-digit revenue growth. Although some states spent those dollars quickly on short-term needs, others took advantage of this opportunity to lower taxes and increase their long-term economic outlook and competitiveness. In fact, nearly half of states have lowered income taxes since 2021 in this state tax-cut revolution.

Since 2023, revenues have been more or less flat and the spigots pushing out federal funds have been turned down. The latest budgets reveal varying degrees of fiscal health at the state level. As the boom years for state budgets fade away post-pandemic, the states committed to fiscal responsibility, as we urge in our American Legislative Exchange Council State Budget Reform Toolkit, will find themselves in a much stronger position. They will have an easier time balancing budgets, lowering tax burdens, paying down debt and saving for a rainy day.

Consider Florida. One of America’s fastest-growing states, it will spend less than it did last year, despite an increase in revenues. GOP Gov. Ron DeSantis signed a budget that includes a $500 million reduction for 2024.

The new Florida budget also allocates $1.5 billion toward tax relief and uses $6.3 billion to pay down outstanding debt, bringing state debt to a 25-year low.

Meanwhile, the states spending money as quickly as it comes in and ignoring the effects of high taxes on economic competitiveness will see more pronounced boom-and-bust cycles in the years ahead.

Read the full op-ed.