U.S. states enacted 'cautious' budgets for FY18 in face of limitations: report

By Stephanie Kelly

NEW YORK (Reuters) - "Cautious" U.S. state budgets enacted for fiscal year 2018 reflect the limitations states faced from two consecutive years of slow revenue growth as well as spending pressure for pensions and healthcare, according to a report released on Thursday.

The report from the National Association of State Budget Officers, which details data collected from all 50 states, shows state general fund spending for enacted fiscal 2018 budgets is expected to grow 2.3 percent from fiscal 2017 - the slowest growth rate since fiscal 2010.

State general funds are used by most states to draw expenditures and appropriations for services.

For fiscal 2018, general fund appropriations ticked up $12.7 billion across program areas, compared with increases totaling $25.8 billion enacted last year.

General fund revenues are expected to increase "moderately" at 4 percent in fiscal 2018 from fiscal 2017, the report said. Nearly a quarter of the revenue growth is due to revenue measures, including tax and fee increases, that legislatures enacted in their last legislative session.

"Non-recurring actions in (fiscal) '17 had to be caught up to in making the fiscal '18 budget, and therein lies a revenue growth rate that's a little higher than the spending growth rate," NASBO's executive director, John Hicks, said in a news conference call.

States have seen sluggish revenue growth in the last two years. In fiscal 2017 and fiscal 2016, general fund revenues grew 2.3 percent and 1.8 percent, respectively, the report said.

The slow growth resulted in 22 states making net mid-year budget reductions totaling $3.5 billion in fiscal 2017, the highest number of states making such cuts since fiscal 2010, the report said.

At the beginning of the fiscal year on July 1, 11 states began the year without fully enacted budgets, while a number of states have had to call special sessions to deal with spending plans, the report said.

While stock market growth could help state revenues and pension plan returns this fiscal year, states face uncertainty at the federal level, the report added.

Republican tax legislation could eliminate the state and local tax deduction as well as eliminate federal tax breaks for private activity and advance refunding bonds.

(Reporting by Stephanie Kelly; editing by Daniel Bases and Jonathan Oatis)