2015 is officially behind us and many state officials that are in charge of determining budgets are well into the fiscal year 2016 and already thinking about 2017 spending. These days they have more to smile about than in recent years.
Most state agencies ended the fiscal year 2015 with a surplus, or at least saw revenues meet projections, the National Association of State Budget Officers (NASBO) reported in October 2015, after a gathering in Washington, DC.
“State finance officials expect continued growth for the most part in fiscal 2016 but are cautious about the future as there is still an open question as to how well the economy will grow,” NASBO wrote.
Onvia’s research agrees. Published state and local opportunities increased slightly in the third quarter of 2015, part of a trend that has steadily improved for four consecutive quarters.
After several years of recession, things are slowly getting better. State agencies have experienced economic growth, lower unemployment and consumers are spending more money. Those three ingredients lead to more stability in state budget offices. Despite the steadily improving conditions across the broader market, some agencies are maintaining conservative budgets that allow for little, if any, spending increases. They are dealing with decreasing oil prices, less revenue coming in than expected, uncertainty in the federal government, and pressures from long-term obligations, NASBO reported in September 2015.
The majority of governors’ proposed budgets include projections of modest revenue growth, moderate increases in spending, and rainy day fund levels at - or near - historical averages. Yet, governors are still remaining cautious. They aren’t recommending major increases in spending. Instead, they want modest spending growth and to make sure their spending matches the amount of money coming in from taxes.
For example, the State of Georgia based its fiscal year 2015 budget on an anticipated revenue growth of 3.4%. However, when 2014 ended, it had 4.8% growth in actual revenue.
“Annual revenue growth, coupled with conservative spending and a growing rainy day fund are positive evidence that Georgia is better today than it was last year,” Georgia Governor Nathan Deal said in his State of the State speech in January 2015.
For two years in a row, the Commonwealth of Massachusetts has struggled after spending more money than it had in its coffers. In response, leaders cut spending by $1 billion, but state spending still increased by 7.8% over fiscal year 2014 while tax revenue grew by merely 4%.
“This is simply an unsustainable path for Massachusetts. We must live within our means,” Governor Charles Baker wrote in his summary of the proposed fiscal year 2016 budget. The proposal would limit spending growth to around 3%, address long-term structural changes and reduce reliance on one-time revenue.
“Operating within our means will require difficult but responsible decisions,” he concluded.
The exact decisions to make cuts and where to make them are not easy choices. Nevertheless, each agency can minimize the forced cuts by trimming its fat and becoming a streamlined organization. One way is turning into smarter buyers.
“State agency buyers are focused on one overarching goal: The relentless pursuit of greater efficiencies,” according to Onvia’s State and Local Procurement Snapshot for Q3 2015.
State agencies are investing in their IT network infrastructure to become leaner without duplicative information systems, and operations and maintenance, so they can continue running without breakdowns. Meanwhile they are building less and avoiding over spending in business services.
Vendors should feel confident in the year to come as the state of states is not as bad as in past years. While state budget officials may be wearing a guarded smile for now, their optimism and willingness to manage a conservative rate of spending growth is a good sign for government vendors in all industries.