In a report issued on August 1, 2019, Fitch Ratings (“Fitch”) analysts opined that most U.S. states are experiencing solid revenue growth, reflecting economic expansion and positive impacts from the Tax Cut and Jobs Act (TCJA).
Forty six states commenced their 2020 fiscal year in July 1.
Following budget enactments in Pennsylvania and Illinois, Fitch revised the two states’ rating outlooks to “Stable” from “Negative”.
California Outlook
California’s General Fund is expected to increase by 3.4% to nearly $148 billion in 2020. Fitch said: “Much of the increase in revenue will be automatically allocated to K-14 education under Proposition 98 but will also support increased spending for Medi-Cal (California’s Medicaid program), higher education, programs that counteract poverty and homelessness, climate change, infrastructure, and paying down liabilities.”
Further, the California Legislature set aside an additional $2.2 billion for the state’s rainy day fund, which if realized, would bring the balance to $16.5 billion (BuyMuni note: rainy day fund balances are subject to market volatility of investments).
Illinois Outlook
Illinois’ budget is currently benefitting from a 32% surge in April 2019 tax receipts. The 2020 budget of 40 billion includes a $400 million increase in K-12 funding and a multi-yaer labor contract with American Federation of State, County and Municipal Employees Council 31 (AFSCME).
Fitch noted that the state will has more than $6 billion accounts payable backlog. While issuing bonds to pay down the liabilities generate savings, Fitch noted that the state was trading “one form of liability for another”.
Connecticut Outlook
The major development for Connecticut in 2019-2020 was the revision of state employees collective agreement, which allowed for the extension of the paydown of unfunded pension liability. A New York based analyst familiar with Connecticut told BuyMuni that the additional extension was for 15 years, deferring final repayment from 2032 to 2047.
On the state’s rainy day reserves, Fitch said:
“The budget reserve fund balance is expected to reach $2.7 billion at the end of fiscal 2020 and $3.2 billion in fiscal 2021, representing 13.9% and 15.8%, respectively, of that year’s revenues. As the balance in fiscal 2021 would exceed the 15% statutory threshold, the state would be required to apply excess funds toward the state’s long-term liabilities.”
New York Outlook
Despite disappointing tax collections in fiscal year 2019 (New York fiscal year starts in April 1), Fitch analysts opined that the state’s 2020 budget “largely remains within the budgetary management framework in place for the last decade. State operating funds spending growth rises no higher than 2%, Medicaid spending growth remains within the 3% global cap”.
New York’s financial flexibility remains robust, with nearly $3 billion in rainy day and supplemental reserves. The state expects to have a general fund cash balance of $6.5 billion at the end of the fiscal year.
The Fitch report is available via subscription at www.fitchratings.com.
Read the press release: https://www.fitchratings.com/site/pr/10083363.
For questions on this article, contact Jumanne Johnson at JJohnson@BuyMuni.com.
