State Fiscal Outlook for 2001

As the nation’s legislatures convene their 2001 sessions, state policymakers will face a wide range of fiscal issues and economic situations. Most states continue to report favorable fiscal conditions, with general fund revenues reaching or exceeding the estimates on which fiscal year (FY) 2001 budgets were built. At the same time, a handful of states are facing serious budget dilemmas that will require some tough fiscal choices. This mixed bag of state fiscal fortunes promises to make 2001 legislative sessions particularly interesting.

The next few months are critical for state lawmakers as they make spending adjustments in current budgets and develop new ones for FY 2002. Most states report that spending in the current fiscal year is on target with budgeted levels. Those expecting to make supplemental appropriations report that revenues or reserves are sufficient to cover the extra spending needs. One of the most common programs running over budget is Medicaid, where costs and enrollments are rising above projected levels.

Outlook for Remainder of FY 2001: Positive

With strong state finances midway through FY 2001, most states report that the fiscal outlook for the rest of FY 2001 is positive. Some are more guarded, however, citing concerns about the strength of the economy. For a few states, the outlook is troubled.

Lawmakers expect to address a wide variety of fiscal issues as they craft their FY 2002 budgets. For many states, strong economic growth is expected to continue, although there are growing concerns that the recent revenue bonanza may be coming to an end and state revenue growth rates will return to more traditional levels. As a result, fewer states than in past years are expected to consider tax cuts. A few states indicate that structural budget imbalances are possible. This is a turnaround from recent years when almost every state reported strong fiscal conditions.

Key Issues in 2001 Legislative Sessions

Some of the most prominent fiscal issues to be addressed in 2001 sessions include education finance, especially capital costs and teacher salaries, and covering the rising cost of Medicaid.

This report, based on a December 2000 survey of legislative fiscal staff in 50 states and the District of Columbia by the National Conference of State Legislatures, highlights state fiscal conditions at the start of 2001 and provides an outlook for the remainder of the fiscal year.

State Revenue Growth is Strong or Stable for Most States

Overall, most states report that they are in good fiscal shape as the new year starts and work begins on FY 2002 budgets. Twenty-one states report revenue collections above original forecasts. Another 23 states and the District of Columbia indicate that revenue collections are on target. Only six states report revenue collections below estimates.

Fewer Tax Cuts Expected in 2001 Sessions

Signaling a possible shift away from the tax cutting fever of the past six years, 20 states report that tax cuts are likely to be considered in 2001 legislative sessions (compared with 31 states that cut taxes in 2000). This number could grow as governors present their budget requests and legislators begin bill introductions. A half dozen states also will consider tax increases for specific programs. Overall, tax cuts are expected to exceed any increases, so the net state tax change is likely to be a reduction, although not of the magnitude seen in recent years.

Supplemental Appropriations are Common in FY 2001

Supplemental budget appropriations are a common feature in most states because it is difficult to predict actual program expenditures, especially for caseload driven programs. Most states reported cost overruns for various programs, especially for Medicaid. Reserves and anticipated revenues are expected to be sufficient to offset most unanticipated spending requests.

Key Fiscal Issues for 2001

States report that key fiscal issues facing 2001 legislatures will include the rising costs of Medicaid, K-12 education funding (including teacher salaries and school construction needs), ongoing tax relief, state employee compensation and some concerns about the strength of the economy.

State General Fund Revenue Collections

Forty-four states and the District of Columbia report that general fund revenue collections to date are on or above target with budgeted estimates. On target is defined as being within 1 percentage point of the original estimate. Six states report general fund revenue collections below estimates through the first few months of FY 2001.

While sales and personal income tax collections are strong in most of the states that report revenues above forecast, the same taxes were cited as being weaker than originally estimated in most of the states with revenues below forecast. The sales tax stands out as being particularly problematic in a few states.

Half the states report that revenue performance is outpacing original forecasts made for FY 2001. In some instances, states started with very conservative forecasts that were bound to be too low. But in other states, the robust economy continues to bolster state revenue growth beyond reasonable expectations. In California, revenues were already $1.4 billion above forecast by the end of November. Connecticut is projecting that revenue collections will be $624 million or 5.5 percent above the original estimate. Although Minnesota forecasters set their estimate of FY 2001 revenue growth at 8.7 percent above FY 2000 collections, the growth rate was 11.5 percent through November. Montana increased its estimate by $59.5 million or 5.3 percent on the strength of income tax collections and federal reimbursements for disaster costs. North Dakota increased its estimate by $82 million or 5 percent, based on personal income tax receipts above original predictions.

The recent spate of high energy costs has benefited states with large energy-related tax bases, such as Alaska, Louisiana, New Mexico, Oklahoma and Wyoming. All of these states report higher than predicted oil and natural gas severance tax receipts that have helped boost overall collections above estimates.

On the other hand, Indiana revised its official revenue growth estimate for FY 2001 from 5.2 percent down to 2.7 percent after reporting that corporate income tax collections are expected to fall below FY 2000 levels.

In revising its revenue estimate for FY 2001, Missouri noted that lower than expected sales tax collections were a factor in the revision. Tennessee is facing a $120 million shortfall in its current budget as sales tax collections continue to lag behind budgeted levels. Virginia also is facing slower than expected revenue growth and anticipates a revenue shortfall of about $200 million by the end of the fiscal year. The other two states expecting lower than projected revenue growth are Iowa and North Carolina.

State Expenditure Update

Most states anticipate making supplemental budget appropriations for various state programs. Medicaid is emerging as particularly problematic, with 23 states and the District of Columbia reporting cost overruns. Although revenue collections and budget reserves should be adequate to cover supplemental budget requests, there is concern over the potential for Medicaid and other health care related costs to accelerate and become budget busters. Additional funding needs are being driven by rising prescription drug costs, increased caseloads, higher enrollment because of the State Children’s Health Insurance Program (SCHIP) outreach programs and higher medical service costs, especially for long-term care.

Key Fiscal Issues in 2001

Key fiscal issues expected in 2001 legislative sessions include K-12 education funding (especially for teacher salaries and school construction costs), Medicaid, tax cuts and tax reform, corrections funding, state employee compensation, senior drug assistance programs, economic development, utility deregulation, property tax relief and health insurance costs for state employees and state retirees.

Other fiscal issues that will be addressed include early childhood programs, transportation funding and tobacco settlement appropriations.

Tax Changes in 2001

Compared with recent years, 2001 sessions are expected be relatively quiet on the tax front. Thirteen states and the District of Columbia do not expect any tax changes. Tax cuts are expected to be discussed in at least 20 states, although this number could grow as governors present their budget requests and legislators begin bill introductions. Last year, 31 states cut taxes. But multiple years of state tax cuts and uncertainties about the economy have reduced the number of states likely to consider major tax cuts in 2001. A half dozen states also will consider tax increases for specific programs. Overall, tax cuts are expected to exceed any increases, so the net state tax change is likely to be a reduction, although not of the magnitude seen in recent years.

Among the 2001 proposals are a property tax cut in Arkansas, personal income and corporate income tax rate reductions in Idaho, and a sales tax holiday along with a personal income tax reduction on retirement income for seniors in Iowa. Minnesota, expecting another big surplus, also will consider tax reductions.

Other proposals include reducing the property taxes on motor vehicles in Kentucky, cutting taxes for retirees in Maryland, and speeding up phased-in reductions for both the single business tax and personal income tax in Michigan.

Some states also are considering tax increases this legislative session. Proposals include a recommendation in Washington that the state increase collections from transportation revenue sources to fund infrastructure projects and possible tax increases in Kansas to increase state support for local school districts. Alaska may revisit discussions from last session on creating a personal income and/or a sales tax as well as increasing motor fuel and alcohol taxes.

Survey Instrument

This report is based on a National Conference of State Legislatures telephone survey in December 2000 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 2001 compare with original projections?
Have revenue estimates been revised in FY 2001?
Are there any proposals to cut or increase taxes during the 2001 legislative session?
Are any areas of expenditures exceeding the budgeted level?
What is the overall assessment of the state budget for the remainder of FY 2001?
What are expected to be the key legislative fiscal issues in the 2001 legislative session?

State	State Revenues	Tax Cuts/Increases	State Budget	Fiscal Issues
Alabama	General fund revenue growth is on target with the budgeted estimate (fiscal year began Oct. 1.) Collections for the Education Trust Fund, which receives income and sales tax revenues, are more of a concern.	It is unlikely that there will be discussion on either tax cuts or increases in 2001.	Expenditures for state programs are on target. Although general fund revenues look good, there are concerns about revenue for the Education Trust Fund (ETF). Moreover, a new law that earmarks a portion of the ETF for K-12 teacher salaries is expected to put pressure on other programs funded by the ETF.	Teacher salaries and health insurance for education personnel will be key issues. Medicaid also will be a major concern, particularly with the proposed rule changes for federal reimbursement.
Alaska	General fund revenues are expected to be at least $200 million above original projections because oil prices have rebounded. If oil prices remain about $30 per barrel, revenues could be up to $260 million above projections for the fiscal year. The official revenue estimate has not been revised.	Discussions about creating a personal income and/or sales tax are likely again this year. Increases in motor fuel and alcohol taxes also are possible. A bill already has been prefiled for raising alcohol taxes.	The overall budget outlook is good. Supplemental appropriations are expected to be modest. Expenses for forest fires are funded through supplemental funding (between $10 million to $15 million). Other supplemental funding could total $10 million. K-12 education could be underspent by $3 million to $5 million.	A long-term fiscal plan for the state will be discussed again. Funding capital costs for K-12 schools and other capital projects, such as ports and public buildings, are likely to be key fiscal issues. The governor would like to see the state spend more on child care.
Arizona	Revenue collections for the first five months of FY 2001 were $58.4 million (2.5 percent) more than forecast. Legislative officials now expect revenue growth to reach 6 percent for the fiscal year, a half a percentage point higher than the original forecast.	Voters approved a ballot measure that increased the sales tax rate by 0.6 percent. No tax policy changes are expected for the upcoming legislative session.	Medicaid spending for FY 2001 is expected to exceed the budgeted level by $103.1 million due to enrollment growth. Corrections spending may be lower than budgeted as inmate growth has slowed by half. Overall, the budget is in pretty good shape.	Key fiscal issues for the 2001 legislative session include dealing with the aftermath of granting the alternative fuel vehicle tax credit.
Arkansas	The revenue forecast had been revised downward from 4.1 percent to 2.7 percent in July. Because revenue collections for the first four months of FY 2001 were $44 million more than forecast, growth is now expected to be closer to 3.6 percent.	There is a chance of either a tax increase for school construction or a tax cut (property tax relief) in the 2001 legislative session.	Corrections appropriations are expected to fall $7 million to $8 million short of expenditures due to the increased cost of local jail contracts. Higher than expected enrollment will increase higher education scholarship program costs by $14 million.	Key fiscal issues for the 2001 legislative session include tobacco settlement appropriations, teacher salary increases, economic development incentives for industries and the repeal of the sales tax on used cars.
California	Through November, revenues were coming in $1.4 billion (5.9 percent) above projections. Strong performance by personal income and sales taxes was cited as the reason. Given concerns about national economic indicators and a weakening stock market, the revenue outlook through the end of the fiscal year is somewhat uncertain.	Neither tax cuts nor tax increases have been actively discussed to date.	A November budget report showed that most state expenditures were close to target and expected to remain so through the end of the fiscal year. The state’s budget condition for the rest of FY 2001 is good.	The key fiscal issues in the upcoming legislative session are expected to be electric utility deregulation and K-12 education funding.
Colorado	The economy remains strong and revenues continue to come in above the budgeted estimate. Through October, revenues for FY 2001 are $83.5 million or 1.3 percent above the estimate.	Discussions of permanent tax cuts are likely to continue, but voter approval of a school funding initiative has complicated matters.	Expenditures for both corrections and Medicaid are exceeding budgeted levels. The state has sufficient revenues, but it is limited in the amount of supplemental appropriations that can be made because of a spending limit equal to 6 percent of prior year appropriations.	A key fiscal issue in 2001 will be the school funding initiative approved in November. It requires state funding for K-12 education to increase by enrollment growth, inflation, plus 1 percent. Taxpayer rebates, highway funding and other capital construction may be trimmed as a result. Funding corrections and Medicaid within the spending cap also will be an issue.
Connecticut	General fund revenues to date are above the budgeted estimate. Collections through the end of FY 2001 now are projected to be $624 million or 5.5 percent above the original estimate. Personal income tax collections, especially from capital gains, have been a major factor in the revenue growth. The outlook for the remainder of the fiscal year is excellent. This is the fourth year collections have been significantly above estimates.	Given the strength of revenues, tax increases are unlikely. The phase-out of several taxes will continue. Additional tax cuts are unlikely.	Rising prescription costs, 12,500 more people enrolling and HMOs withdrawing have resulted in a $85 million shortfall for the Medicaid budget. Social services is $13.7 million over budget. Other program areas are over budget by $153.4 million. Despite these overruns, the overall budget condition for the rest of FY 2001 is very good. The state is projecting a surplus of between $400 million and $500 million.	A key concern for the state is maintaining expenditures below its spending cap. Current requests for supplemental appropriations will exceed the spending cap by $220 million or 1.7 percent.
Delaware	Revenue collections through the end of November are down from the previous year, but are close to target. The forecast was revised down slightly, from 2.4 percent to 2 percent. Personal income tax cuts enacted during the 2000 legislative session are slowing revenue growth.	Broad-based tax cuts are unlikely, although small targeted cuts are possible.	Medicaid expenditures are expected to exceed appropriations by $17 million (higher prescription drug costs and increased enrollment from State Child Health Insurance Program (SCHIP) outreach programs. Surplus revenues from previous years are considered sufficient to cover unanticipated costs.	A key fiscal issue likely in 2001 is education finance, including the state’s share for school construction and teacher salaries.
District of Columbia	General fund revenue collections through the first quarter were on target with estimates. In addition, the revenue outlook for the rest of the year is favorable.	Neither tax cuts nor increases are likely.	The District’s overall budget condition is favorable at this time, but there is a possibility of a structural imbalance. The adoption of the FY 2002 budget will be a major issue. Larger than expected caseloads are causing shortfalls for Medicaid ($37 million) and disability compensation ($3 million).	Adopting the FY 2002 budget will be a major fiscal issue.
Florida	General fund revenue growth through early December was on target with budgeted estimates. The outlook for the remainder of the fiscal year is for revenues to remain on target with the budgeted estimate.	Other than an already planned phase-out of the intangibles tax and the by-the-drink surcharge that will require year-to-year passage, no additional tax actions have been announced.	Supplemental appropriations of $328 million are projected for the Medicaid budget due to rising prescription drug costs and additional coverage of welfare-to-work participants. The outlook for the rest of the fiscal year is good. Overall, the challenges that have emerged this fiscal year are well within the state’s ability to manage them.	Key fiscal issues are expected to include Medicaid funding, education spending, tax cuts and funding reforms of the state’s election system. Also, funding two constitutional amendments (one dealing with court system funding and the other with the mandatory construction of a high- speed rail system) will be key fiscal issues in 2001.
Georgia	Revenue growth was projected at 7.5 percent, and collections through November are on target. The remainder of the year looks good due to a surplus from last year combined with tremendous revenue growth this year.	The state continues to reimburse local governments for ongoing property tax cuts.	The overall budget condition is excellent with a large surplus. Half of the surplus is likely to be spent on school construction. Medicaid is exceeding budgeted levels and will require a supplemental appropriation of between $32 million and $100 million.	Education reform is the major fiscal issue. This is the second year of a major plan to reduce class size and increase teacher accountability.
Hawaii	An official revision to the revenue estimate in September increased projected growth for the fiscal year to 6 percent from a budgeted level of 3.4 percent. Revenues through November were running slightly above the new estimate at 7 percent.	Following a round of phased-in tax cuts in 1998, it is uncertain if any additional tax cuts will be considered in 2001. A $25 million cut in the personal income tax (in January 2001) will be the next phased-in reduction from the multiyear tax reduction package of 1998.	A consent decree issued against the state over the provision of mental health services for children is expected to require a supplemental appropriation of between $35 million and $50 million in FY 2001. With revenues higher than projected, the budget outlook is good (although the revenue growth already is spurring additional funding requests for FY 2002).	The mental health consent decree is expected to require an additional $350 million to $450 million in mental health expenditures in FY2002. Union contract agreements involving state employees are expected to be key fiscal issues for the Legislature in 2001.
Idaho	Strength in personal income tax collections has generated $170 million in revenues over original budget projections. The revised estimate predicts growth of 7.2 percent. The revenue outlook for the rest of FY 2001 is cautious based on recent national economic trends.	Tax rate reductions are likely in personal income and corporate taxes.	Although Medicaid caseload growth and fire suppression costs will require supplemental appropriations for FY 2001, a record surplus is expected. Overall budget conditions are good.	The key fiscal issue will be tax relief-how much is possible in view of a possible economic slowdown.
Illinois	Revenue collections for the first five months are on target and are expected to remain so provided holiday sales tax collections are strong.	Neither tax cuts nor increases are likely.	The budget outlook is cautiously optimistic. Most major expenditure categories are in line with budgeted levels. Medicaid, however, is exceeding budgeted levels and will require a supplemental appropriation.	One key fiscal issue is growth in the Medicaid program due to increases in the cost of prescription drugs and hospital stays.
Indiana	General fund collections are below budgeted levels. FY 2001 revenue growth was officially revised from 5.2 percent to 2.7 percent. Corporate income tax collections in particular have fallen dramatically and are expected to come in $35 million below FY 2000 levels.	Neither tax cuts nor increases are likely.	Medicaid is exceeding its budgeted level by approximately $71 million. Overall, the state has sufficient balances to offset declining revenues.	Key fiscal issues likely will be property value reassessment methods and property tax relief, research and development tax issues, restructuring the corporate income tax to a single factor on sales, and participation in the states’ streamlined sales tax initiative.
Iowa	Year-over-year revenue growth is only 1.7 percent compared to a budgeted estimate of 5 percent. The revised FY 2001 revenue estimate is now 4.7 percent based on a softening state economy.	There is discussion of a sales tax holiday that would help offset rising fuel costs and also a personal income tax reduction for seniors on retirement income.	Health insurance costs are exceeding budgeted levels. State reserves are sufficient to cover the unanticipated health insurance shortfall. Although the economy is tightening, the FY 2001 budget is okay. Very tight fiscal conditions are expected for FY 2002.	The key fiscal issue likely to be addressed in the 2001 session is a proposal to raise K-12 instructors’ salaries.
Kansas	General fund revenue collections are coming in above the budgeted estimate through November. The revised revenue estimate for FY 2001 is for 6.7 percent growth. The outlook for the remainder of the fiscal year is for steady, but moderate, revenue growth.	Attention is focused on possible tax increases to provide more state support to local school districts.	Social and Rehabilitative Services has exceeded its budgeted level by $21.2 million because of rising caseloads in medical assistance, general assistance and foster care. The overall budget condition for the rest of FY 2001 is still strong, and the outlook is optimistic.	The school funding formula is likely to be the key fiscal issue in the 2001 legislative session.
Kentucky	Revenue growth basically was on target through the first quarter of FY 2001 (4.9 percent versus the 5.2 percent forecast). Sales tax revenues were off in the first quarter, but overall revenues are expected to meet targets by the end of the fiscal year.	A bill that would cut property taxes on motor vehicles has been prefiled.	The state expects between $45 million and $50 million in savings from its K-12 education budget and will direct the funds to the school trust fund. Medicaid spending is expected to run $10 million more than budgeted due mainly to increased enrollment. The budget outlook is on target for the rest of the fiscal year, with the state running surpluses since 1996.	Key fiscal issues in the 2001 legislative session will include funding for increased worker’s compensation premiums and statewide collection and disposal of solid waste.
Louisiana	Revenue collections are above budgeted levels because of higher than projected oil and natural gas severance tax collections. Revenue collections are expected to end above estimate by the end of the fiscal year.	Neither tax cuts nor tax increases are likely in 2001. During the 2000 session, a number of taxes were increased temporarily to meet spending obligations.	The budget outlook for the remainder of the fiscal year is bleak. A hiring freeze is currently in effect and the governor is considering across-the-board budget cuts before the end of the fiscal year.	Teacher and college faculty pay raises are likely to be key fiscal issues in the 2001 legislative session. Budget cuts are likely in other state programs as a means of financing the proposed pay raises for teachers and college faculty.
Maine	Revenue projections for FY 2001 were revised in November 2000 to reflect stronger-than-expected growth in sales taxes and miscellaneous sources and weaker collections in personal income taxes. The net increase was 0.6 percent. Collections are expected to meet the revised target in FY 2001, despite present indications of softening sales tax collections.	No specific recommendations have been made. A structural budget gap is forecast for the next biennium, so some revenue adjustments may be considered.	Other than a Medicaid shortfall, expenditures are expected to stay on target in FY 2001. In the short term, state fiscal conditions are favorable.	The 2001 session will address the structural budget gap that is likely to develop in the biennium that begins in July 2001. Tax cuts will take effect in that biennium, and at present a structural gap of 5 percent appears likely. The state will also make a transition to performance budgeting.
Maryland	Through November, revenue collections were coming in above projections due to better than anticipated economic growth. The forecast is now 4.2 percent (year-over-year), compared with an original estimate of 2.7 percent.	Although tax cuts are not expected to be a prominent item of discussion, some additional decreases for retirees may be considered.	A deficiency appropriation of $30 million is expected for Medicaid due to higher than expected enrollment and costs. Overall, the current budget is in very decent shape. Potential problems are down the road.	The governor has proposed transferring $80 million from the general fund to the transportation fund for mass transit. The state also has made multi-year commitments to capital projects from operating funds. Funding for these commitments may not be sustainable in future years.
Massachusetts	Revenues are coming in on target with the budgeted estimate through November. While revenue growth for the first quarter of FY 2001 started off at 11.3 percent, growth slowed considerably in October and November.	Tax cuts and tax increases are unlikely in 2001 as a voter- approved tax cut takes effect at the beginning of the new year.	FY 2001 is expected to be the first budget year in a few years without a large budget surplus. The state is projecting a budget stabilization fund of $1.7 billion. Medicaid is expected to require a supplemental appropriation of between $175 million and $220 million.	Key fiscal issues in the 2001 legislative session are expected to include dealing with phased-in tax cuts and funding of the Senior Pharmacy Assistance Program.
Michigan	Revenues are above the forecast made last May by $147 million or 1.5 percent (year-over-year). Collections in October (the first month of the fiscal year) were particularly strong. Previously enacted tax cuts are keeping overall revenue growth down. A revision to the official forecast will be considered in mid January.	Although no sizeable surplus is expected at the end of FY 2001, a surplus of a couple hundred million dollars is possible at the end of FY 2002. As a result, discussions of tax cuts are expected in the 2001 session. Likely possibilities include speeding up the phased- in reductions from both the Single Business Tax cut and the personal income tax rate cut.	No programs are significantly over or under budget. The overall outlook is good, with a slight surplus possible after the revenue estimate is revised. While the economy is slowing, growth rates are consistent with assumptions made when the budget was created. The state also has $1.5 billion in its rainy day fund.	Key issues include additional tax cuts, the Medicaid budget (and the effect of the loss of the Upper Payment Limit), the prescription drug program for senior citizens and the reauthorization of TANF (which depends on federal action).
Minnesota	Revised FY 2001 revenue estimates as of Nov. 30 show revenue growth of 11.5 percent over FY 2000. The single largest factor is higher income tax collections; investment income also is up. More recent data project economic growth for the remainder of FY 2001 below the levels used in the November forecast.	Tax cuts will be an item of discussion in the 2001 session, and some are likely to pass.	The overall budget condition is good. Expenditures are projected to be lower than budgeted, with health and human services and debt service down, and K-12 education up slightly.	The key fiscal issue will be what to do with another surplus-tax cuts versus spending.
Mississippi	Revenue growth through November is coming in close to original projections (3.9 percent versus the original forecast of 4.2 percent). The official revenue estimate was revised downward by $144.9 million due to lower than expected income and sales tax collections.	Neither tax cuts nor increases are likely.	The budget condition is guarded. There are several built-in spending increases that may be difficult to meet with slower than expected revenue growth.	The key fiscal issue this year will be balancing the budget.
Missouri	General fund collections are coming in at a 2.7 percent growth rate rather than the originally projected 4.9 percent rate (due to lower-than-expected sales tax collections, previously enacted corporate franchise tax cuts, and exemptions in personal income taxes for food purchases). Lower collections are expected to continue.	Chances for any tax changes are slim to none.	The budget outlook for the balance of FY 2001 is constrained. Supplemental appropriations to cover overruns in Medicaid and corrections spending will be made.	Pharmaceutical costs in Medicaid will be a significant focus of fiscal discussions. A large number of capital improvement projects are on hold, awaiting a court decision on the Hancock Amendment’s requirements to return another $220 million in surplus revenues to taxpayers.
Montana	General fund revenues are up $23.5 million over the budgeted level due to income tax collections and Federal Emergency Management Agency reimbursements for disaster costs. The official revenue estimate has been revised upward by $59.5 million (5.3 percent). The revenue outlook is stable and should meet the revised target.	There is little chance of either tax cuts or increases. There will be revenue-neutral tax reform bills, including income tax simplification.	The overall budget condition is stable. Supplemental requests for health and human services ($14 million) and fire suppression ($17 million net) will reduce the ending fund reserve. The governor also is requesting supplemental appropriations for the Montana Historical Society for costs of storing and cataloguing a major art collection donated to the state and for several agencies’ costs resulting from a change in administration.	Increases in human services funding are hitting, primarily in mental health and Medicaid. Foster care caseloads are growing and a large child protective services increase is being requested. K-12 education is a priority, as is control of corrections costs. Other significant issues include local government reimbursement for tax relief, income tax reform, economic development, and utility deregulation and costs.
Nebraska	Revenue collections for FY 2001 are close to target (less than 1 percent above the budgeted level to date). The revenue forecast has been increased about 2 percent due to general economic activity and the effect of capital gains on income taxes. Revenues for the year are likely to meet the revised target.	Unless there is strong pressure for a tax increase to provide substantial raises in teachers’ salaries, significant changes are unlikely in 2001.	Expenditures are on track with the budget, although Medicaid overruns are a possibility. Fiscal conditions are likely to remain favorable throughout FY 2001.	There have been demands for substantially increased funding in a number of areas. Medicaid and teachers’ salaries will be issues in 2001.
Nevada	Based on four months of gaming tax revenues and three months of sales tax collections, the revenue growth rate is 6.3 percent year-over-year compared to a budgeted level of 3.5 percent. The official revenue estimate was revised upward on Dec. 1 to reflect this change, due primarily to better-than-expected sales tax collections.	No tax changes are proposed, although there may be some interest in the streamlined sales tax project and what it could mean for Internet sales.	The state has a healthy surplus that legislators will be able to use for a variety of one-time appropriations. On the operating side of the budget, discussions will be more problematic.	Energy deregulation and restructuring child welfare responsibilities among local governments and the state will be significant fiscal issues. The governor has indicated a high priority for state employee pay increases.
New Hampshire	Through the first five months, collections were coming in above projections due to better than anticipated business tax revenue. The forecast is now 7.6 percent, compared with an original estimate of 3 percent.	Legislators are likely to search for revenue sources to fund education.	Expenditures are on track with the budget, although there are concerns about funding K-12 education.	The key fiscal issue in New Hampshire is funding K-12 education in response to a recent state supreme court decision requiring the state to guarantee an adequate education.
New Jersey	Revenue collections are above estimates by $65 million to $100 million (1 percent to 2 percent) for the first five months of the fiscal year. An official revision to the forecast will be considered in January. The outlook for the remainder of the fiscal year depends on the strength of the personal income tax, whose recent strong growth isn’t well understood.	Tax increases are unlikely. Any cuts will be announced in the governor’s budget proposal and are likely to be modest.	Supplemental appropriations are possible for municipal and school aid, and health benefits for state and college employees. Overruns are about $70 million. The overall budget condition for the rest of the fiscal year is good with the caveat that a downside revenue risk is a possibility.	Key fiscal issues include local property tax relief, formulation of the FY 2002 budget, and refinancing solid waste disposal debt of counties.
New Mexico	As of mid-November, general fund revenue collections are expected to increase 14.1 percent for FY 2001, rather than the original projection of 5 percent, because of increased oil and natural gas tax receipts.	Tax increases likely will not be discussed. The governor recommends a tax cut of $75 million that will probably focus on the income tax.	Expenditures for courts have increased, but account for a modest amount within the budget. Supplemental appropriations for Medicaid are expected. Overall, the budget offers opportunity from increased revenues, but also risk associated with the volatility of oil and gas sources.	Key fiscal issues are likely to be tax cuts, salaries for public employees, recommendations from an education task force appointed by the Legislature, equity in school construction and health insurance for low-income adults. The size of the reserve fund also will be an issue since the governor wants 8 percent and the Legislative Finance Committee recommends 5 percent.
New York	General fund revenue collections are officially on target with budgeted estimates. Officials are cautious regarding the revenue outlook for the remainder of FY 2001 because of uncertainties involving the financial markets based in the state.	The Senate majority may consider selective tax cut proposals in the 2001 legislative session. The state has enacted various tax cuts in each of the past five years.	State budget expenditures are on target with estimates. No deficiency requests are anticipated. The state budget condition is considered excellent, even as some slowing in the economy appears. The state recently had its credit worthiness upgraded by a major bond rating agency.	Key fiscal issues in the 2001 legislative session are expected to include education aid increases and tax cuts. Higher education is expected to present a five-year plan calling for an additional $5 billion in funding. Legislators also will have to figure out how to deal with a $3.8 billion transportation bond issue that was rejected by voters in November.
North Carolina	Revenue collections for the first four months of the fiscal year are below estimates by $320 million (about 2 percent of the budget). A combination of tax refunds that were pushed into FY 2001, lower than projected sales tax growth and slowing in the corporate income tax account for the decline. A further decline is expected for the remainder of the fiscal year.	There has been no discussion as yet regarding tax changes. In view of the revenue situation, tax cuts probably are unlikely.	Medicaid is running over budget and could end up with a $70 million to $100 million gap (state portion only). Costs per unit of service are driving the overage. The budget situation is very tight because of revenue conditions. The governor already has informed agencies to trim their budgets and cut expenditures.	Key issues include the revenue shortfall, Medicaid finance, and state employee and teacher compensation (including pay raises and big increases in health care costs). The governor-elect also ran on a platform that included the creation of a lottery to fund class size reduction and pre-school. This issue is likely to be discussed in the 2001 session.
North Dakota	Revenue collections to date are on target. Although sales tax receipts are lagging, personal income tax collections are above predictions. The forecast has been revised upward by $82 million (about 5 percent) due to the personal income tax. The state is expected to remain on track with the revised forecast.	The governor-elect ran on a platform of no tax increases, and the legislature is likely to agree. Policymakers may consider fully exempting farm machinery from the sales tax.	State officials expect the need for a small deficiency appropriation of about $19 million to cover overspending in a half dozen agencies. Most of the overages deal with the effects of natural disasters and paying the state match for FEMA funds. The assessment for the rest of the biennium is pretty good. There is some concern about the unpredictability of the farming economy and lagging sales tax receipts.	Big increases in health insurance costs for state employees are expected to be a key fiscal issue in the next session. The outgoing governor also proposed a major technology initiative to get fiber optic lines out to schools, counties and rural areas. Funding the initiative will be a big issue.
Ohio	Revenues through November are on target at 2.8 percent growth (year over year). The official revenue estimate for FY 2001 was increased by $485.5 million (3.3 percent growth over FY 2000 revenues).	Although tax increases are highly unlikely, there have been some discussions of cuts, particularly in the personal income tax. But if the economy sours and other budget pressures increase, such cuts will become more difficult to implement.	The Medicaid budget required a supplemental appropriation of $634.8 million during FY 2001 due to increased caseloads and rising prescription drug costs. Disability assistance also received a supplement of $10.7 million. Some savings are expected from TANF, as it is expected to be under budget by $39.7 million. All state agencies have been ordered to reduce their current fiscal year spending by 2 percent to 4 percent.	Key fiscal issues in the 2001 legislative session are expected to include education finance, Medicaid growth, declining revenues and possible tax cuts.
Oklahoma	General fund revenues basically are on target, with expected growth at 6.6 percent for FY 2001 rather than the 5.6 projected level. The increase is due to increased natural gas tax receipts.	Tax increases will be highly unlikely. The governor may propose some type of tax cut to encourage new business growth. A sales tax holiday and the food sales tax are likely to be discussed.	Expenditures are on target with their budgeted levels. Supplemental appropriations are expected for Medicaid, corrections, lease purchase obligations for debt, and National Teachers Awards. The overall budget condition for the rest of the fiscal year is expected to be stable.	Key fiscal issues are likely to include a higher education initiative emphasizing technology and engineering, K-12 classroom materials, a health care initiative that was started last year, and debt service.
Oregon	General fund revenues are more than 2 percent above the budgeted estimate through November, and are projected to remain above estimate through the end of the fiscal year. Oregon’s "kicker" law (which requires that excess revenues be returned to taxpayers when revenues exceed budgeted estimates by more than 2 percent) is expected to be triggered this fiscal year. Strong growth from personal income and corporate income taxes are cited for the surplus revenues.	Voters approved a measure in November that increases the deductibility on federal income taxes paid by state residents. No major tax cuts proposals are anticipated in the 2001 legislative session.	Budget expenditures appear to be on target with estimates. Although revenues are higher than anticipated, low job growth is causing concern about the prospect for continued revenue growth into the next biennium.	Key fiscal issues in the 2001 legislative session are expected to include rising Medicaid costs and some proposed program reductions in the 2001-2003 biennial budget. A focus of the new budget is expected to be on early intervention services and other early childhood programs.
Pennsylvania	General fund revenue collections are close to the budgeted estimate through November (up $72.4 million or 1 percent). Strong growth in personal income tax withholding is cited as the primary reason. The revenue outlook for the remainder of FY 2001 is for very stable collections and a smaller surplus than recent years.	A phase-out of the capital stock and franchise tax that was enacted in 2000 will continue. A continued expansion of the personal income tax poverty exemption is expected. Otherwise, a general wait-and-see attitude will take place as the economy receives close scrutiny.	The K-12 education budget is expected to require a supplemental appropriations of $60.5 million, mostly for unexpected pupil transportation costs. The budget outlook for the rest of the fiscal year is stable.	A key fiscal issue will be how to spend the tobacco settlement funds.
Rhode Island	General fund revenue collections through November are coming in on target (5.2 percent rate versus a budgeted level of 5.9 percent). Despite performance to date, revenues are expected to come in slightly ahead of estimates through the end of the fiscal year.	The state expects to continue phasing out the motor vehicle excise tax and phasing down the personal income tax. This is the fourth year in a five-step process. The current rate is 26.5 percent of federal liability; the next step is to reduce the tax to 25 percent. There is also discussion of proposed additional tax cuts from the new Senate leadership.	Health care expenditures are the most likely to exceed the budgeted level. The state has pending waiver requests from the Health Care Financing Administration that are expected to save $20 million if approved. The state budget condition is considered to be favorable.	The state continues to reduce income tax and motor vehicle excise taxes. The concern is whether the state can afford to continue these cuts.
South Carolina	General fund revenue collections are close to target ($18 million below estimates) through November. The official estimate for the remainder of FY 2001 was decreased by $96.4 million (1.7 percent) due to an economic slowdown in the state.	A temporary provision passed by the 2000 General Assembly will reduce the sales tax on food by 1 cent per year beginning in January 2001.	State programs are expected to be on target with budgeted expenditures. The outlook for the remainder FY 2001 is guarded, as a further slowdown in revenues is a concern. Any further revenue reductions will require action by the General Assembly or the Budget and Control Board to reduce spending.	Key fiscal issues in the 2001 session include funding for recurring programs that have been traditionally paid for with nonrecurring funds, phasing in teachers’ salary increases to the national level and maintaining funding levels for key programs such as Medicaid, Senior Prescription Drugs and state employee health insurance
South Dakota	General fund revenues are close to target (expected to grow 4.6 percent rather than the 3.9 percent originally projected). The state’s economy is performing well, and the sales tax in particular is helping revenue growth. The revenue outlook for the remainder of the fiscal year continues to be strong.	Neither tax cuts nor tax increases are likely in 2001.	State programs are expected to be within their budgeted levels, and revenues are modestly better than expected. No supplemental appropriations are anticipated at this time.	The governor has proposed funding scholarships for South Dakota students to attend state higher education institutions. Another key fiscal issue will be to determine how to respond to an initiative passed in November 2000 that repeals the state inheritance tax.
Tennessee	First quarter general fund collections were 3.4 percent below the budgeted level. Sales tax collections have grown at a rate of 2 percent instead of the projected 7.6 percent. The executive branch projects a $120 million general fund shortfall for FY 2001.	Discussions of tax reform and tax increases remain open.	Expenditures, including TennCare, are on target. The executive branch has warned agencies to prepare to absorb the potential general fund shortfall in FY 2001. New hiring and travel freezes are in effect.	Overall budget funding will be the central issue in the 2001 session. The FY 2001 operating budget included $100 million in one-time revenues.
Texas	Revenue collections are above target through the first two months of the fiscal year. (Fiscal year began on Sept. 1.) Strong general sales tax and motor vehicle sales tax collections were reported in the first two months. Revenue collections are expected to be stronger than originally projected through the end of the fiscal year.	Although there has not been much discussion of possible tax cuts in the 2001 legislative session, decreases could be a possibility if revenue estimates remain higher than originally projected.	Supplemental budget requests are expected for Medicaid (for rising prescription drug prices, higher medical service fees, and some spillover from SCHIP enrollments) and for adult corrections (rising prices for contract beds with counties). Revenues appear to be outpacing supplemental spending needs.	A key fiscal issue in the 2001 legislative session will be the cost of group health insurance for current state employees and state retirees. Another key fiscal issue is expected to be prison staff salaries.
Utah	Revenue collections to date are coming in $176.7 million above collections. The annual growth rate now is projected to be 5.1 percent (compared with an original projection of 0.2 percent). At the time of the original forecast, tax commission indicators showed slowdowns in sales and corporate income tax collections, but the slowdowns haven’t occurred yet.	The likelihood of tax changes is unknown. The governor has proposed a double-digit increase for higher education and is expected to propose a similar sized increase for K-12 education. Funding the proposals may prevent tax cuts. If tax cuts are considered, the likely candidate is changing personal income tax brackets.	State expenditure levels mostly are on target. Adoption assistance may require a small supplemental appropriation. The outlook for the rest of the fiscal year is very good. The economy is still growing and is expected to be strong through the Olympics in 2002. After that time, growth is expected to slow.	Key fiscal issues include K-12 and higher education funding, a possible change in personal income tax brackets, possible acceptance of hotter hazardous waste and what to charge for it if accepted.
Vermont	Revenue collections basically are on target ($4.9 million or 0.5 percent above projections) through the end of November and are expected to be on target for the year. The FY 2001 revenue forecast was revised in July from a 0.2 percent decline to no change from the previous year. Tax cuts enacted in prior years are dampening revenue collections.	The Legislature is likely to consider cutting the statewide property tax.	Medicaid expenditures are expected to exceed appropriations by $5 million. The overruns are attributed to increased prescription drug costs and enrollment growth. Supplemental appropriations for out-of-state placements of mental health patients and special education are expected. The budget outlook for the rest of the fiscal year is good.	Key fiscal issues for the 2001 legislative session include reforming Act 60 (the state’s education finance law), controlling health care costs and maintaining a surplus of 5 percent in the rainy day fund.
Virginia	Revenue growth slowed to 3.2 percent through October compared to a budgeted rate of 5.4 percent. It is expected to be even lower through November and December. A revenue shortfall of approximately $200 million for this fiscal year is expected The official revenue forecast has been revised downward, primarily due to reduced expectations of personal income tax collections .	Debate will center on whether sales tax rates can be reduced to the low 4 percent range from the current 5 percent range, as well as whether the car tax phase-out can continue.	Expenditures for Medicaid and corrections will exceed budgeted levels.	The most significant fiscal issues will be the continued phase-out of the car tax, the softening of revenues, and foster care.
Washington	General fund revenue collections are on target with the budgeted level. A November revision to the estimate projected a slight increase in revenues of $50 million for the rest of the biennium.	Tax cuts and increases are highly likely in 2001. A study recommended the state raise transportation revenues to fund infrastructure projects. A citizen initiative to reduce property taxes passed, but was deemed unconstitutional. The Legislature will probably want to provide property tax relief.	Medicaid and other health care expenditures are expected to exceed their budgeted levels because use of these programs has increased so dramatically. Supplemental appropriations of at least $140 million in the current fiscal period will be needed for health care. The state will struggle to meet health care costs within its constitutional spending limits (cuts in other programs could occur).	Key fiscal issues in the 2001 legislative session will be transportation and health care.
West Virginia	Revenue collections through November are close to target ($9.5 million below forecast levels). The outlook for the remainder of the fiscal year is tight with both income and sales tax revenue falling short of expectations.	Legislators probably will consider an excise tax on smokeless tobacco, a value added tax proposal and plans to license and tax video poker.	The overall budget picture is worrisome with sluggish revenue growth and supplemental appropriations requests likely for corrections (including $1 million for a juvenile detention center, $1.9 million for inmate medical care and $5.1 million for county jails).	Legislators face the challenge of funding public employee retirement and pay increases (already approved), as well as a number of education and corrections proposals, without raising taxes or cutting obligations to other programs.
Wisconsin	Revenue collections are on target for the first four months and are expected to stay in line with the revenue forecast (which predicted a 5.6 percent decline in FY 2001 over FY 2000 revenues). Major tax cuts in previous years are responsible for the decline in revenues.	Property and income tax cut proposals will be considered in the 2001 legislative session.	Expenditures for Badgercare (the state’s Medicaid program) are expected to exceed appropriations by $13 million, primarily due to enrollment increases. No supplemental appropriations are expected. The budget condition for the rest of the fiscal year is good.	Key fiscal issues for the 2001 legislative session include increasing prescription drug coverage for senior citizens and tax cut proposals.
Wyoming	A revised estimate shows year-over-year revenue growth of 7.3 percent through February (compared with an original forecast of -4.9 percent). Current projections anticipate a $409 million surplus. The continued bright outlook for the remainder of FY 2001 is due to increased severance tax collections, based on higher oil and natural gas prices, as well as healthy sales and use tax collections.	No tax cuts are yet proposed, although debate is likely over the governor’s authority to control a potential sales tax rate reduction triggered by a general fund surplus.	The state’s budget is in fine condition, with a $409 million projected surplus. No budget overruns are anticipated. Supplemental appropriations of $221 million are needed for state employees’ salaries, capital construction, and health and educational endowment programs.	Debate will center on earmarking and distributing mineral royalty revenues, including treatment of those funds when they exceed statutory caps.