Managing a state’s finances—whether working to erase a budget deficit or reaching consensus on what to do with a surplus—is challenging. But planning for fiscal threats beyond the immediate budget cycle is not only far more complex, it’s often overlooked altogether.
The Pew Charitable Trusts is working with policymakers to reimagine their approach to fiscal management, reaching beyond the budget conditions of today to plan for the risks and investment needs of tomorrow. Although many budget challenges are shared, specific needs and priorities vary from state to state. There is no single path to strengthening state fiscal management practices.
Sudden shocks such as recessions and natural disasters can severely strain state finances in the short term, especially for states dealing with chronic deficits from costs outpacing revenue. Compounding these immediate and ongoing threats are emerging trends—population shifts, technological advancements, aging infrastructure, a changing climate—that can lead to future fiscal crises. The absence of critical, long-term preparation could mean the difference between a resilient state budget and an upended one.
Although these risks loom over every state, their true cost can be obscured by one-time infusions to the budget or a lack of information about long-term liabilities, or superseded by more pressing needs. Accounting for and acknowledging these budget stressors can, however, help states avoid painful measures during tough economic times, such as raising taxes when constituents are cash-strapped, cutting key programs people rely on in a downturn, and compromising long-term obligations.
Over the past decade, states have made significant progress in strengthening their long-term fiscal health. Some have embraced risk-management tactics, like regularly studying revenue volatility, stress-testing their budgets against future scenarios, and evaluating the risks and rewards of tax incentives. Meanwhile, other states have collectively amassed their largest fiscal reserves on record and have improved their retirement systems to their best condition in more than a decade, according to Pew estimates.
These improvements have established a clear picture of what is possible as states consider the health of their finances over the next decade. Pew can help states build on that success, which is supported by Pew’s track record of providing policymakers across the political spectrum with a rigorous understanding of states’ fiscal health, elevating research-driven best practices, and partnering with state officials to help fortify their state’s future. Pew aims to enable a new approach to state fiscal management, delivering to decision-makers the data, analysis, and guidance they need to face these long-term risks head-on and identify opportunities for growth.