JEFFERSON CITY, Mo. (AP) — State governments emerging from the coronavirus pandemic built historic cash surpluses as inflation in prices and wages drove up sales and income tax collections.
Now many states are reaping another reward: banking millions of dollars off those surpluses as the Federal Reserve fights inflation with higher interest rates.
“We’re catching both ends of it,” said Missouri Treasurer Scott Fitzpatrick, a Republican.
First, “we received a lot of extra money,” he said. “Now, nominally, we’re benefiting from the increase in interest rates from the Fed.”
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.
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 concerns the U.S. could slip into a recession.
“Some of this is what I call a sugar high,” said Phil Dean, chief economist and public finance researcher at the University of Utah’s Gardner Policy Institute. “The growth rates…
