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Even as the nation struggles to bounce back from the recession, most state governments — including Hawaii’s — are increasing their spending.

General fund spending is higher in all but 10 states this year. The general fund portion of Hawaii’s operating budget is up by 10 percent — nearly four times the national average.

Only four states projected larger percentage budget growths than Hawaii for 2012.

In all, 40 states including Hawaii increased spending, according to a [pdf] by the and the .

Hawaii lawmakers decided on an $11 billion operating budget for fiscal 2012, which began July 1, including $5.4 billion from the state’s general fund. That’s up $800 million total, or about an 8 percent increase over this past year. The general fund portion is up 10 percent.

On average, for fiscal 2012, states’ general fund spending is going up 2.6 percent. In fiscal 2011, that figure grew by 5.2 percent on average, according to the report.

Second Year of Spending Increases

General funds make up about 40 percent of overall state spending, the organization says. In Hawaii’s case, general funds represent just about half the state’s total budget.

“This spending increase will be the second consecutive year-over-year increase in general fund expenditures following back-to-back declines in general fund spending in fiscal 2009 and fiscal 2010, at 3.8 percent and 6.3 percent, respectively,” according to .

All 50 states plan to spend a total of $668.6 billion from their general funds next year — up from $651.5 billion in fiscal 2011¹.

But the report wasn’t totally upbeat.

States Still Have ‘Uphill Path to Full Recovery’

While total spending is up, it’s still $18.7 billion less than states spent collectively in fiscal 2008 before the recession. Twenty-nine states have budgeted lower general fund spending in fiscal 2012 compared to fiscal 2008. (For Hawaii, general fund spending was about the same in as the budgeted 2012 amount.)

“These 29 states highlight that a significant number of states still face an uphill path to full recovery,” the report says. “While general fund spending has risen during fiscal 2011 and governors forecast spending to rise again in fiscal 2012, the combination of a loss of Recovery Act funds and a national economy that is recovering slowly are likely to result in the continuation of challenging fiscal conditions for fiscal 2012 and beyond.”

The report noted that growing Medicaid costs nationwide “represent the single largest portion of total state spending.” Meanwhile, it says states have made the biggest cuts to public education, higher education, public assistance programs and transportation expenses to balance their budgets.

The economic downturn also meant more people sought government aid and health care.

Indeed, in Hawaii, lawmakers cited growing “fixed costs” for things like welfare expenses as well as health insurance and pension benefits for government employees.

“The challenge before us was that during down economic times, demand for public services skyrocket, so there is about a $600 million increase in Medicaid, for example,” Senate Ways and Means Chairman David Ige said after lawmakers agreed on the budget. “The biggest addition really dealt with those safety net services … and clearly there were increases in fixed costs — debt service, increased public health benefit costs and those kinds of things — which clearly we don’t have an option in funding or not funding.”

Gov. Neil Abercrombie had proposed a budget that was even bigger than the one lawmakers agreed on. They scaled back and rejected many of the revenue measures the governor had wanted.

Hawaii taxpayers are on the hook for about $600 million in new tax revenue to help pay for the budget. These include suspending General Excise Tax exemptions for about two dozen businesses, capping how much revenue the counties get from the Transient Accommodations Tax, limiting itemized deductions for high-income earners, and hiking vehicle registration fees.

New Taxes, Fees Totaling $14B

To pay for their bigger budgets, states proposed a host of tax and fee adjustments for fiscal 2012 that will increase general fund revenue collections by a total of $13.8 billion, according to the survey. That’s more than twice the $6.2 billion in tax and fee increases that were enacted by states in fiscal 2011. But that’s still considerably less than the changes adopted in fiscal 2010 (the height of the recession). That year, states passed $23.9 billion in tax and fee increases.

“State finances can take many years to fully recover from recessions, as was the case after the 2001 recession,” the study said. “Combining this typical lag time and the slow recovery of the national economy means that state general fund revenue collections remain below their 2008 highs, even after two consecutive annual increases.”

States General Fund Expenditures

Note: FY10-FY11 reflects changes from fiscal 2010 expenditures (actual) to fiscal 2011 expenditures (estimated). FY11-FY12 reflects changes from fiscal 2011 expenditures (estimated) to fiscal 2012 expenditures (recommended).