April 25, 2008
Sluggish Revenues at Core of State Budget Woes
A New Study by the National Conference of State Legislatures Shows the Current Health of State Budgets is Very Uneven.
WASHINGTON- With few exceptions, state finances are deteriorating--in some cases considerably. Many state lawmakers are confronting a two-fold problem: keeping their fiscal year (FY) 2008 budgets in the black and enacting balanced budgets for 2009.
The National Conference of State Legislatures' State Budget Update: April 2008 is based on information collected from legislative fiscal directors in April. It covers the revenue and expenditure situation for the first three quarters of FY 2008 for most states. It includes information on revenue performance, spending overruns, projections of budget gaps in 2008 and 2009, the revenue outlook for next year and the overall fiscal situation in each state.
“The current health of state budgets is very uneven,” said William T. Pound, executive director of the National Conference of State Legislatures. “For energy-producing states, the fiscal situation is strong and the outlook is good. But that situation is in stark contrast to states where the housing sector slump has been particularly severe or other fiscal challenges have prevailed.”
Current state fiscal conditions are being driven by weak revenue performance. State officials expected revenue growth to slow in FY 2008, but not as dramatically as it has. Since the November 2007 edition of this report, more states have reported revenue problems and many previously identified budget holes have deepened.
“Whether or not the national economy is in recession is almost beside the point for some states," Pound said. "The fiscal situations have declined so much in some states that they appear to be in a recession.”
Because most FY 2008 budgets were built on revenue forecasts that are not materializing as expected, budget gaps have grown. In November, seven states and Puerto Rico reported shortfalls. That number rose to 16 states and Puerto Rico by mid-April. Collectively, these gaps totaled at least $11.7 billion.
Even with revenue growth slowing, it is fortunate state spending plans largely have remained stable. About a quarter of the states and Puerto Rico reported spending overruns in November. Since that time, eight states have been added to the list. Most overages appear to be modest.
The situation is worse for FY 2009: Budget gaps have emerged in 23 states and Puerto Rico, and collectively they exceed $26 billion. Again, slowing or declining revenue from personal income, general sales and corporate income taxes is the principal reason. In fact, two-thirds of the states are concerned about FY 2009 revenue performance. Four states are pessimistic.
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General Fund Revenue Outlook for Fiscal Year 2009
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| Optimistic |
Stable |
Concerned
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Pessimistic |
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Alaska
North Dakota
Wyoming
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Georgia
Iowa
Louisiana
Michigan
Missouri
Oklahoma
South Dakota
Texas
Utah
West Virginia
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Alabama
Arkansas
California
Colorado
Connecticut
Florida
Hawaii
Idaho
Illinois
Indiana
Kansas
Kentucky
Maine
Maryland
Massachusetts
Minnesota
Mississippi
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Montana
Nebraska
Nevada
New Jersey
New Hampshire
New Mexico
North Carolina
Ohio
Oregon
Pennsylvania
Puerto Rico
South Carolina
Rhode Island
Tennessee
Vermont
Virginia
Wisconsin
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Arizona
Delaware
New York
Washington |
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Source: NCSL survey of legislative fiscal offices, April 2008.
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But the news is not bad everywhere. In Louisiana, storm-recovery spending is slowing but still ongoing, and the oil and gas sector is strong. In North Dakota, revenues are exceeding legislative estimates by 13 percent. With natural gas, oil and coal prices ahead of projected levels, officials in states such as Wyoming may revise FY 2009-2010 revenues upward this fall.
Most other states are somewhere in between these two extremes, with the majority concerned about mounting budget pressures, a deteriorating national economy and the increased problems generated by a possible recession. Ultimately, most states are worried about future revenue performance. South Dakota’s note captures the situation well:
“The state outlook is relatively stable, but officials are concerned that national trends could drag the state down.”
Members of the media may obtain a free copy of NCSL's State Budget Update by contacting NCSL's Press Room.
NCSL is the bipartisan organization that serves the legislators and staff of the states, commonwealths and territories. It provides research, technical assistance and opportunities for policymakers to exchange ideas on the most pressing state issues and is an effective and respected advocate for the interests of the states in the American federal system.
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