{"id":25603,"date":"2022-12-28T11:56:44","date_gmt":"2022-12-28T11:56:44","guid":{"rendered":"https:\/\/staging.sightlinemg.com\/federaltimes\/uncategorized\/2022\/12\/28\/states-banking-big-bucks-as-fed-fights-inflation\/"},"modified":"2026-08-08T05:01:29","modified_gmt":"2026-08-08T05:01:29","slug":"states-banking-big-bucks-as-fed-fights-inflation","status":"publish","type":"post","link":"https:\/\/staging.sightlinemg.com\/federaltimes\/congress\/budget\/2022\/12\/28\/states-banking-big-bucks-as-fed-fights-inflation\/","title":{"rendered":"States banking big bucks as Fed fights inflation"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">State governments emerging from the coronavirus pandemic built historic cash surpluses as inflation in prices and wages drove up sales and income tax collections.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Now many states are reaping another reward: banking millions of dollars off those surpluses as the Federal Reserve fights inflation with higher interest rates.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">\u201cWe\u2019re catching both ends of it,\u201d said Missouri Treasurer Scott Fitzpatrick, a Republican.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">First, \u201cwe received a lot of extra money,\u201d he said. \u201cNow, nominally, we\u2019re benefiting from the increase in interest rates from the Fed.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Missouri is hardly alone. States ranging from Democratic-led Massachusetts to Republican-led Texas as well as politically divided Minnesota all are sitting on large surpluses that are swelling even further thanks to favorable interest rates on investments.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As legislatures prepare for their 2023 sessions, governors and lawmakers are proposing to tap into those surpluses to cover tax cuts and greater spending on priorities such as infrastructure and education. Though most states can afford it, financial experts are nonetheless urging caution because of <a href=\"https:\/\/apnews.com\/article\/inflation-business-9b2bb41058476b14b36a4acf98e3baed\">concerns the U.S. could slip into a recession<\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">\u201cSome of this is what I call a sugar high,\u201d said Phil Dean, chief economist and public finance researcher at the University of Utah\u2019s Gardner Policy Institute. \u201cThe growth rates are definitely not sustainable.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">California could be a harbinger of economic trends. After projecting an unprecedented $97 billion surplus just seven months ago, state officials are now <a href=\"https:\/\/apnews.com\/article\/inflation-business-california-gavin-newsom-government-and-politics-f2d77b7d33c82e1acfc3ee9c5274d871\">forecasting a roughly $25 billion deficit<\/a> in the next budget. California imposes higher taxes on the wealthy than most states, leading to pendulum-type swings in tax revenues as the stock market rises and falls.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">State budgeters have labored through abnormally uncertain times since the coronavirus pandemic began in early 2020. As governors ordered shutdowns to try to slow the spread of the virus, layoffs skyrocketed and states braced for huge revenue losses. But federal relief payments put spending money in people\u2019s pockets, labor markets rebounded and the deep downturn was short-lived.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">State tax revenues surged well beyond expectations. After back-to-back years of double-digit percentage growth in revenues, states ended their 2022 fiscal years with <a href=\"https:\/\/www.nasbo.org\/reports-data\/fiscal-survey-of-states\">a record cash balance of nearly $343 billion<\/a>, according to the National Association of State Budget Officers.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">\u201cBudgets are really strong \u2014 historically strong,\u201d Tim Storey, CEO of the National Conference of State Legislatures, said as he previewed the upcoming legislative sessions.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Large surpluses put states in a position to benefit as the <a href=\"https:\/\/apnews.com\/article\/inflation-business-jerome-powell-government-and-politics-81b03a1a55ae8a934e2df45120912133\">Federal Reserve raised its benchmark interest<\/a> rate seven times this past year, making many loans more expensive in an attempt to slow spending and fight inflation.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Texas had projected a $27 billion surplus for its current budget, boosted by strong sales taxes and energy revenues. That\u2019s likely to rise to more than $30 billion when a revised revenue estimate is released in January, said Tom Currah, associate deputy comptroller for fiscal matters. That\u2019s a larger surplus than the annual general fund expenditures of 40 other states.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Republican Gov. Greg Abbott promised during his reelection campaign that half the surplus would go toward property tax relief.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Surging tax revenue in Massachusetts this year <a href=\"https:\/\/apnews.com\/article\/charlie-baker-massachusetts-personal-taxes-government-and-politics-4f99df6e38c370d6708bf3fb70367db1\">triggered a seldom-used state law<\/a> requiring $2.9 billion to be returned to taxpayers. Large cash balances allowed the state to collect nearly $57 million of interest in October alone \u2014 six times the amount earned during the entire 2021 fiscal year.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Minnesota is projecting <a href=\"https:\/\/apnews.com\/article\/business-minnesota-legislature-state-budgets-government-and-politics-99f78b46d4bd90ccb9f1ce7525f759f9\">a record $17.6 billion surplus<\/a> for the next budget. A strong economy, with one of the lowest unemployment rates in the nation, pushed individual income, sales and corporate tax revenues higher than originally projected. Political gridlock contributed to the swollen coffers, as the Republican-controlled Senate and Democratic-led House couldn\u2019t agree on how to use all the extra money.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Thanks to higher interest rates on the huge surplus, Minnesota expects investment earnings of $428 million this fiscal year \u2014 a whopping 1,427% increase over a prior estimate.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Democrats who were victorious in the fall elections will hold full control of Minnesota government in 2023. Gov. Tim Walz said the surplus could be used to provide tax rebates, increase investments in education, modernize infrastructure and add charging stations for electric vehicles.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">\u201cWe can do all of these things. This isn\u2019t a choice of either-or,\u201d Walz said.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Virginia finance officials expect the nation to fall into a recession in 2023, depressing the state\u2019s tax revenues. Yet the state has so much extra money that Republican <a href=\"https:\/\/apnews.com\/article\/politics-business-richmond-virginia-state-government-bb247895307f23bfb5eaa00dd15fa267\">Gov. Glenn Youngkin recently proposed<\/a> an additional $1 billion in tax cuts and $2.6 billion in spending on education, economic development, public safety, behavioral health and the environment.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">\u201cOur state government\u2019s financial condition has never been stronger,\u201d Youngkin said.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Citing a large surplus, Missouri Gov. Mike Parson <a href=\"https:\/\/apnews.com\/article\/business-corporate-taxes-missouri-columbia-government-and-politics-0f1b81cef03a49fbe16199f24b5e22bd\">called lawmakers into a special fall session<\/a> to pass what he described as \u201cthe largest tax cut in the state\u2019s history.\u201d The first rung of the eventual $760 million income tax cut takes effect in January. Yet Missouri still expects to finish its 2023 fiscal year with a surplus, leaving money to potentially spend on things such as teacher pay raises.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In the first five months of its fiscal year, Missouri already has earned $116 million on its investments \u2014 nearly doubling the earnings of the entire previous year. But Fitzpatrick, the treasurer, advises caution for policymakers.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">\u201cEven though we\u2019re making a lot of money, inflation is outpacing what we\u2019re able to make on our money,\u201d said Fitzpatrick, who will take office as the elected state auditor on Jan. 9. He added: \u201cWe need to be careful not to commit the state to a lot of ongoing new expenditures.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Pennsylvania\u2019s treasury is projected to rake in $275 million of interest this fiscal year \u2014 13 times the average amount over the past five years. Though comprising just a fraction of the state\u2019s overall budget, the interest earnings would be large enough to run any of the state\u2019s Cabinet agencies for a full year, except for education, human services and corrections.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Republican Treasurer Stacy Garrity recommended that budget writers put the extra cash into reserve, pointing out that an independent fiscal agency projects a billion-dollar-plus deficit for the 2023-24 budget year.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">\u201cWe know that a fiscal cliff is looming, and it\u2019s crucial that the Commonwealth prepare as much as possible,\u201d Garrity\u2019s office said.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Some other states also are forecasting leaner times.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Under a recently revised revenue forecast, Oregon expects to reap $190 million of interest during the current budget cycle \u2014 almost double the amount that had been projected just three months earlier. The state expects a $4 billion surplus this year. But state fiscal analysts also expect a mild recession in 2023 that could help flip the surplus into a $560 million budget deficit during the next two years.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">\u201cThe sharp rise in interest rates this year is akin to taking one\u2019s foot off the gas and slamming on the brakes. The car will shake, skid and even fishtail,\u201d said a report by Oregon\u2019s Office of Economic Analysis. \u201cThe ultimate question is does it end up in the ditch or is the driver able to pull out of it?\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"<p>States ranging from Democratic-led Massachusetts to Republican-led Texas as well as politically divided Minnesota all are sitting on large surpluses.<\/p>\n","protected":false},"author":7,"featured_media":42563,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_yoast_wpseo_meta-robots-noindex":"","_yoast_wpseo_meta-robots-nofollow":"","_yoast_wpseo_canonical":"","_acf":"","_yoast_wpseo_primary_category":65,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","_smg_distribution_targets":[]},"categories":[65,31,15,68],"tags":[],"coauthors":[3169],"class_list":["post-25603","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-budget","category-home","category-management","category-leadership"],"acf":{"subheadline":"","legacy_arc_id":"Y6NHWM5RFNFPVLEHRULE5PTELQ","arc_canonical_url":"\/management\/budget\/2022\/12\/28\/states-banking-big-bucks-as-fed-fights-inflation\/","remove_feature_photo":false,"is_sponsored":false,"subtype":"","redirect_url":"","disable_inline_ads":false,"native_logo_pretext":"Presented By:"},"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.0 (Yoast SEO v28.1) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>States banking big bucks as Fed fights inflation - Federal Times<\/title>\n<meta name=\"description\" content=\"States ranging from Democratic-led Massachusetts to Republican-led Texas as well as politically divided Minnesota all are sitting on large surpluses.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/staging.sightlinemg.com\/federaltimes\/congress\/budget\/2022\/12\/28\/states-banking-big-bucks-as-fed-fights-inflation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"States banking big bucks as Fed fights inflation\" \/>\n<meta property=\"og:description\" content=\"States ranging from Democratic-led Massachusetts to Republican-led Texas as well as politically divided Minnesota all are sitting on large surpluses.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/staging.sightlinemg.com\/federaltimes\/congress\/budget\/2022\/12\/28\/states-banking-big-bucks-as-fed-fights-inflation\/\" \/>\n<meta property=\"og:site_name\" content=\"Federal Times\" \/>\n<meta property=\"article:published_time\" content=\"2022-12-28T11:56:44+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-08-08T05:01:29+00:00\" \/>\n<meta name=\"author\" content=\"David A. Lieb, The Associated Press\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"David A. 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