State Budgets and Tax Overview
NCSL's Fiscal Affairs Program tracks state budgets and taxes, generally recognized as issues that drive all others when state lawmakers consider public policy.
Budget Conditions. Keeping state budgets balanced has been difficult for state legislators in recent years. NCSL conducts periodic surveys and publishes the results in State Budget Updates. These reports address fiscal conditions in October/November and again in March/April. These reports are supplemented by information collected for "State Budget Actions," an annual report that collects state spending and revenue information for the most recently completed fiscal period and the forthcoming one.
All states but one require balanced budgets, so legislators must carefully plan their expenditures. The results of their efforts are documented each year in State Budget Actions. As part of their overall approach to budget balancing, a number of states use budget stabilization or rainy day funds.
The states' ongoing fiscal difficulties and the possibility that states irresponsibly spent themselves into their own crisis raise important questions: How fast did state budgets grow in the 1990s? Was their growth out of line with the past? Where did the money go? State Spending in the 1990s reviews the growth of state spending in the 1990s, puts it into the context of the remarkable national economic growth of that decade, and discusses some of the major changes that occurred in state spending.
Budget procedures, the way states produce their budgets, vary in America's state legislatures. States use different types of budgets, including line-item, program-based, performance-based, and modified zero-based. Some budget annually while others budget on a biennial basis. Most state fiscal years end on June 30, although four states follow a different schedule. Legislative Budget Procedures in the 50 States and Territories outlines these varying approaches.
Tax revenue provides the major source of funding for state government operations. Each year NCSL conducts a survey at the close of legislative sessions and, based on information provided by legislative fiscal directors, reports the significant revenue changes in State Tax Actions.
Forty of the 45 state governments with a sales tax have embarked on an ambitious project to restructure their sales taxes cooperatively, partly to make it easier for all businesses to comply with sales tax collection requirements and partly to solve problems of use tax avoidance. Internet sales have been the catalyst for state action, since they appear to pose an overwhelming competitive threat to local merchants and to state sales tax collections. University of Tennessee researchers estimated the state sales tax loss due to Internet commerce at $13.3 billion for 2001, with a prediction that the loss would increase to $45.2 billion by 2005. Unless states are able to require out-of-state vendors to collect and remit sales taxes on purchases made by state residents, in-state merchants face a competitive disadvantage because they are required to collect sales taxes.
Tax Policies in most states rely on the use of personal income and general sales taxes, which produce more than two-thirds of all state tax revenue. Each tax has advantages and disadvantages, discussed in the Tax Policy Handbook for State Legislators. Additional state revenue comes from a variety of fees and other charges. Policy principles that policymakers might use when considering the state tax and user fee mix are reviewed in Principles of a High-Quality State Revenue System and The Appropriate Role of User Charges in State and Local Finance.
Property taxes are the mainstay of local governments and provide the major source of funding for schools. Each state's property tax system is different, with variations in the types of property taxable, and the ways taxes are levied. Policymakers can find more about these systems in A Guide to Property Taxes: An Overview. In spite of their importance in state-local revenue systems, property taxes are unpopular, and states provide property tax relief to citizens in a number of different ways. The types of relief have increased in the past few years, as discussed in A Guide to Property Taxes: Property Tax Relief. During the past decade, the relationship between property taxes and state and local government services has changed significantly. Years of surplus revenue, coupled with voter dislike of the property tax, has resulted in major property tax cuts and has led states to shoulder a growing share of education costs. In addition, a number of states rely heavily on businesses and personal property to provide a large portion of property tax revenue. Sometimes, these taxes are not very straightforward or obvious. A Guide to Property Taxes: The Role of Property Taxes in State and Local Finances examines some of these issues.
State Tax and Expenditure Limits (TELs) are designed to curtail growth in government spending by placing constitutional or statutory restrictions on the amount a government entity can spend or tax its citizens. Traditionally, state TELs have limited revenues, expenditures or appropriations. Questions regarding the effectiveness of these traditional limits have led to additional measures such as voter approval requirements or legislative supermajority requirements that also limit state revenue and expenditure options. The restrictiveness of all these limits varies considerably depending upon their design.
Fiscal Affairs Program Staff
NCSL's Fiscal Affairs staff conduct research and answer requests on a variety of budget and tax issues. Staff members include Corina Eckl, director; Lisa Houlihan, Arturo Perez, Glenda Riebeling, Bert Waisanen and Judy Zelio. They may be reached at 303-364-7700 or statefiscal-info@ncsl.org. A more detailed list of fiscal staff is available only for legislators and legislative staff.
Budgets and Revenue Committee
NCSL's Budgets and Revenue Committee is staffed by Judy Zelio in the Denver office and Molly Ramsdell in the Washington, DC office. You may contact them at statefiscal-info@ncsl.org or 303-364-7700 for the Denver office and 202-624-5400 for the Washington, DC office.
National Association of Legislative Fiscal Offices
The National Association of Legislative Fiscal Offices is staffed by Arturo Perez in NCSL's Denver office. He can be reached at 303-364-7700 or statefiscal-info@ncsl.org.
Steven D. Gold Award
The Steven D. Gold Award recognizes a person who has made a significant contribution to public financial management in the field of intergovernmental relations and state and local finance. The award is given annually by NCSL, the Association for Public Policy Analysis and Management, and the National Tax Association, in memory of Steve Gold, an active member of all three organizations.
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