State Fiscal Outlook for 2000

State Fiscal Conditions are Good to Excellent

States report that they are in a generally good to excellent fiscal condition at the beginning of 2000. This information is based on a December 1999 survey of legislative fiscal staff in 50 states and the District of Columbia. Puerto Rico and the Virgin Islands did not respond to the survey. These are the highlights of the National Conference of State Legislatures' survey of state fiscal conditions at the start of 2000.

Overall, states report that they are in strong fiscal shape as the new year starts and work begins on Fiscal Year (FY) 2001 budgets. Twenty states report that revenue collections through the remainder of FY 2000 will exceed initial expectations. Twenty-nine states and the District of Columbia anticipate that revenue collections will be on target with estimates. Only Louisiana downgraded its original estimate of revenue collections for FY 2000.
Twenty-one states report that FY 2000 budgets will be on target. Although 29 states and the District of Columbia expect supplemental budget requests for unanticipated expenditures in various spending categories (i.e., education, corrections, Medicaid, child welfare) revenues will be adequate in all cases to offset the unanticipated spending requests.

Key Fiscal Issues to Be Considered by States in 2000

States report that key fiscal issues awaiting legislatures when they convene in 2000 are funding K-12 education, enacting state tax cuts or tax reform and determining allocations of tobacco settlement funds.

Tax Highlights: Another Round of Tax Cuts Expected in 2000

At least 12 states and the District of Columbia report that tax cuts are likely to be considered during their legislative sessions in 2000. A number of other states expect tax cut proposals but are awaiting formal announcements of the tax cut plans. At least four states are also considering tax increases in 2000.

State General Fund Revenue Collections

Personal income tax and sales tax collections are coming in strong in most states that report revenue collections above forecast. Florida increased its estimated revenue collections for the budget year by 2 percent following a strong performance of sales, corporate income and estate taxes. The new revenue estimate for Minnesota calls for general fund revenue growth of 12.7 percent compared with a budgeted estimate of 8.7 percent.

Strong sales tax collections in Virginia through the first part of the fiscal year are helping propel revenue growth along at 8 percent compared with a budgeted estimate of only 4.8 percent. Other states with better than projected revenue for FY 2000 include Alabama (12 percent), Alaska (38 percent), Maryland (6.7 percent), and South Carolina (5.3 percent).

State Expenditure Update

States also report good news on the expenditure side of the budget: Spending for most major programs is reported to be on target with budgeted levels. Supplemental budget requests for unanticipated requirements are expected in 29 states and the District of Columbia. In all cases, revenue collections are expected to be more than adequate to cover these supplemental requests. Twenty-one states anticipate that there will be no requirements for supplemental budget requests before the end of the fiscal year.

The most frequently mentioned program that is expected to require a supplemental appropriation in FY 2000 is Medicaid followed by corrections and child welfare.

Key Legislative Fiscal Issues in 2000

The key fiscal issues expected to be prominent on many legislative agendas in 2000 include allocating tobacco settlement money, education funding, tax relief, funding capital construction and dealing with large year-end balances. All states with the exception of Arkansas, Montana, Nevada, North Dakota, Oregon, and Texas will convene regular legislative sessions in 2000.

Other fiscal issues that will be addressed in 2000 include rising prison costs, welfare spending, and the impact of electronic commerce on state sales tax collections.

Proposed Tax Cuts or Tax Increases in 2000

Twelve states plus the District of Columbia reported that tax cut proposals are likely to be on the agenda for their legislatures. A number of other states mentioned that they expect tax cut proposals to be on their legislative agendas but are still awaiting formal proposals.

Among the proposals are $100 million in permanent tax cuts in Colorado, conforming to federal income exemptions and standard deductions levels in the District of Columbia, repealing the intangibles tax in Florida, and property tax cuts in Georgia.

Other proposals include the elimination of the state inheritance tax in Maryland, and permanent reductions in personal income and sales taxes in Minnesota. The Oklahoma governor has announced that he would like to see a personal income tax reduction along with a motor vehicle tax reduction.

The Utah governor has recommended a reduction in the unemployment insurance tax. The New York Senate majority leader is considering a proposal for $1.4 billion in phased-in tax cuts.

Some states are also considering tax increases this legislative session. Proposals include some type of tax increase in Kansas to make up for a projected budget shortfall and the Tennessee governor is expected to propose tax reform to increase revenues in 2000. A variety of tax increases and new taxes in Wyoming have also been proposed that would cover a projected shortfall in the next budget period. Although the revenue situation has improved for Alaska, a budget gap may force the state to consider some tax increase proposals carried over from last session. Kentucky may consider a tax increase and a tax decrease in 2000 because of the governor's interest in raising gas taxes for transportation improvements and efforts to relieve the income tax burden on low-income earners.

Survey Instrument

This article is based on a National Conference of State Legislatures telephone survey in December 1999 of legislative fiscal staff. It includes information from 50 states and the District of Columbia. Puerto Rico and the Virgin Islands did not respond to the survey. The survey asked:

How do general fund collections so far in FY 2000 compare with original projections?
Have revenue estimates been revised in FY 2000?
Are any areas of expenditures exceeding the budgeted level?
What is the overall assessment of the state budget for the remainder of FY 2000?
What are expected to be the key legislative fiscal issues in 2000?
Are there any proposals to cut or increase taxes during the legislative session?