The downward spiral in state fiscal conditions continues, with nearly every state reporting a budget gap. A January 2002 survey conducted by the National Conference of State Legislatures (NCSL) revealed that although the bulk of the problem is on the revenue side of the ledger, a growing number of states are facing spending overrruns.
This report is based on information collected from legislative fiscal directors in late January. It covers the revenue and expenditure situation through December 2001, with January updates when they were available. While most of this report addresses budget problems in FY 2002, it also takes a look at fiscal developments affecting FY 2003 budgets.
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State |
What's the revenue situation through the end of December? If revenues are on target with a revised forecast, how does the revision compare to the original estimate? |
Are any areas of general fund spending over budget? If yes, what are they? Are there other areas of concern? |
How large a budget gap does the state face in FY 2002? How is the state addressing that gap in FY 2002? |
What's the budget outlook for FY 2003? |
Are any tax increases being considered to close the budget gap in FY 2003? |
What significant proposals are being discussed to balance the FY 2003 budget? |
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Alabama |
The FY 2002 general fund revenue estimate has been revised downward by $77.3 million (from $1.21 billion to $1.13 billion). The Education Trust Fund (ETF) faced a $160 million shortfall due to lower than expected corporate income and sales tax revenues, but the shortfall was addressed in a December special session. |
General fund expenditures are on target. |
The ETF shortfall was covered by $140 million in tax increases and $20 million in budget cuts. Of the tax increases, $90 million was generated from changes to the corporate tax base including taxing interstate telephone calls, increasing the tax on cellular phone calls and setting a uniform sourcing telephone tax. Bond refinancing added $10 million in revenues. A new actuary estimate reduced the state's obligation to state employee retirement funds by $12 million. Budget cuts were in discretionary funds targeted to the school bond authority for capital projects. |
The Legislative Fiscal Office estimates that the FY 2003 general fund budget will need to be reduced by $70 million from the FY 2002 level because of the lack of carry-forward balances and very small revenue growth. It appears that $114 million in new money will be available for the ETF for FY 2003 due to modest revenue growth projections and further reductions in the state's estimated contributions to the teacher retirement system. |
The governor has proposed such revenue measures as fee and tax increases. |
A constitutional amendment was passed by the Legislature and referred to voters for the June 2002 election. It would establish a reserve fund for the ETF. Oil and gas revenues would be used for the reserve. Up to 6 percent of the Education Trust Fund budget could be withdrawn from the reserve when needed. |
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Alaska |
The average price of crude oil has continued to run below the budgeted estimate, so the revenue shortfall for FY 2002 is expected to be about $1 billion. |
A supplemental appropriation of at least $20 million will be needed for Medicaid. Other supplemental appropriations, such as anti-terrorism highway security, could reach $40 million. Feb. 11 is the deadline for agencies to apply for supplemental funding. |
Officially, the budget gap is $875 million. Oil prices, however, continue to be below forecast so the gap probably will reach $1 billion. State officials do not consider this a true shortfall because reserve funds (from oil revenues) regularly are used to balance the budget. |
A budget gap of $1.25 billion is expected for FY 2003 due to continued low oil prices and the governor's proposal for increased expenditures (totaling $200 million). |
A bipartisan group of House members is proposing income and cruise ship taxes, and raising alcohol taxes. The income tax could generate $300 million in revenues. Many legislators, however, are averse to an income tax without first instituting spending limits. |
No significant revenue proposals are being considered at this point. The Legislature will probably try to hold spending for FY 2003 at FY 2002 levels, which would amount to a $200 million cut from the governor's budget. No hearings have been held yet on the governor's budget. |
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Arizona |
General fund tax collections through the end of December were $47 million (0.75 percent) below the revised November estimate. Revenues are now projected to be $138 million below the revised estimate by the end of the fiscal year. An October revision to the estimate already had reduced projected revenues by $675 million. Corporate income tax collections are particularly weak, with an expected decline of 33 percent compared to FY 2001 actual collections. |
Medicaid expenditures are projected to rise $19 million above the budget level adopted in a special session in late 2001. |
The special session in late 2001 addressed a $675 million budget gap. A January budget revision added another $138 million to the FY 2002 gap. It will be addressed during a February special session that will run concurrently with the regular session. Actions in the first special session included $200 million in spending cuts, $339 million in fund transfers, including a $119 tap of the rainy day fund, and $130 million in other revenue actions (including an increase in the withholding rate). |
The outlook for FY 2003 includes an $800 million (12 percent) budget gap. Revenues in the new fiscal year could be $140 million below the FY 2002 level. Medicaid caseload growth averaging 20 percent per year will increase spending demands for the program by $500 million in FY 2003. |
No broad based tax increases are being considered. |
A combination of spending cuts, accounting actions and a shift of $250 million general fund school construction spending to bonding are being considered to balance the FY 2003 budget. |
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Arkansas |
The budgeted revenue estimate was decreased in the fall by $142 million (4.2 percent). The revised estimate projects a decrease in tax collections of $9.3 million (0.3 percent) from FY 2001. General fund tax collections are close to the revised target through the end of January. This follows an above estimate performance in December and an offsetting decline in January. |
The revised revenue estimate has reduced spending authority by 4.2 percent. Spending is on target with the revision. |
No budget gap is projected in FY 2002 because of the automatic features of the Revenue Stabilization Law that reduces spending by an amount equal to the projected revenue shortfall. Revenue estimates were trimmed $142 million (4.2 percent) earlier in the fiscal year. The state does not have a rainy day fund. |
Compared to the new base budget in FY 2002, general fund revenues are projected to grow 4.1 percent in FY 2003. |
No tax increases are being considered for FY 2003. The legislature is not in regular session in 2002. |
No budget gap is forecast for FY 2003. |
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California |
December general fund tax collections were down $940 million from the revised estimate. FY 2002 collections are now projected to end $5.5 billion (7 percent) below the budgeted estimate. |
General fund expenditures are on target with the budgeted estimate. |
The FY 2002 budget gap is $5.5 billion (7 percent) and is due almost entirely to underperforming revenues. |
The FY 2003 budget outlook projects an $8 billion (10 percent) budget gap. |
No general tax increases are being considered at this time. |
A combination of tax accelerations, expected federal disbursements for terrorism preparedness, special fund taps and borrowing are proposed for balancing the FY 2003 budget. Additionally, tobacco securitization and pension fund actions are being considered. |
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Colorado |
General fund tax collections continued to decline through December and are now an additional $150 million below the revised estimate. Revenues are now $536 million (8 percent) below the original budgeted level. Both income taxes and sales taxes are coming in below projections. |
General fund expenditures are on target, but concern exists over potential Medicaid cost overruns. |
Currently, the state is looking at a $155 million budget gap for FY 2002. To address it, most state agencies have been asked to cut their budgets by 1 percent. Policymakers are trying to protect education, Medicaid and other human service programs, such as mental health. In addition, $390 million in highway and other capital projects were delayed. Creative refinancing measures are being used to maintain the 4 percent general fund reserve. |
The outlook for FY 2003 is better than the current year. An estimated $276 million may become available if the legislature delays a planned repayment to the controlled maintenance trust fund (a special fund for state building repairs). The state borrowed from this fund last year to plug the general fund. |
Colorado voters must approve any tax increase, so none are being considered. |
The legislature won't appropriate as much next year. The current plan is to reduce personal service appropriations (salaries) to agencies by 2.5 percent. |
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Connecticut |
Most major tax collections through January are below the budgeted estimate. Personal income taxes are down 7 percent, sales, 5.3 percent, and corporate income, 40 percent year-to-date versus the budgeted estimate. Revenues for FY 2002 were revised down by $676 million. FY 2003 revenues were dropped by $682 million. |
Deficiency appropriations for FY 2002 are estimated at $70.7 million. Areas over budget include social services, state employee health care, education and corrections. |
The state faced a $765 million (6.4 percent) general fund budget gap in FY 2002. Following savings measures adopted during a November special session, the deficit is now projected at $551.7 million. The Legislature is considering an additional $172.7 million in savings proposed by the governor. |
The state projects a potential FY 2003 deficit of $794.4 million. A revised revenue estimate projects revenues to fall short $682.6 million and estimates expenditures $112.4 million higher than originally thought. The November special session trimmed $84.2 million from the projected deficit through savings measures. Additional proposed savings of $15.4 million could reduce the shortfall to $694.7 million. |
The governor is considering increasing the cigarette excise tax by 61 cents a pack. That would generate $30.8 million in additional revenue in FY 2002 and $122.3 million in FY 2003. |
The governor is proposing $200 million in cuts from the FY 2003 budget and he also proposes postponing tax cuts, increasing court and other fees and tapping reserves held by the state's semi-independent agencies, such as the Connecticut Housing Finance Authority. |
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Delaware |
General fund tax collections are forecast to be $30.9 million (1.3 percent) below estimate in FY 2002. Because the state appropriates only 98 percent of the estimate, it has not encountered a revenue deficit so far in the fiscal year. Personal and corporate income taxes are both running below estimate. |
General fund spending is on target. Areas of potential overspending include state employee health insurance and Medicaid, which has now stabilized. Most of the budget concern involves revenue performance. |
Most state agencies have been ordered to reduce spending by 2 percent, with only some exemptions, most notably the Department of Children, Youth and Families. The rainy day fund has not been tapped in FY 2002. |
The revenue estimate for FY 2003 is down $115 million (4.7 percent) from the June forecast. Combined with the current fiscal year problems, revenues will be down $146 million from the June estimate. |
No tax increases are being considered for FY 2003. |
A mix of savings, one-time revenue measures, no state employee pay raises and a cut in general fund support for capital projects are expected to address the anticipated $146 million shortfall in FY 2003. |
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District of Columbia |
The revenue situation through the end of December is running about $20 million to $25 million below estimate, especially in sales and income/franchise taxes. The FY 2002 revenue estimate is anticipated to be revised downward by $90 million to $100 million. |
K-12 education spending is over budget by $81 million and Medicaid is over budget by $62 million. Other areas of concern for possible cost overruns include mental health programs and public safety. |
The District is dealing with $240 million in budget problems in FY 2002. Budget balancing measures include delaying previously scheduled income tax reductions and possibly tapping into the budgeted reserve for $50 million. |
The budget gap for FY 2003 is projected at $234 million. |
No tax increases have been proposed to date. |
Significant proposals for balancing the FY 2003 budget include the use of budget reserves and spending reductions. |
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Florida |
General fund tax collections are on target with the revised estimate through December. Two previous revisions to the FY 2002 revenue estimate had reduced it by $1.3 billion (6.6 percent). |
K-12 education spending is over budget due to higher than expected enrollment. |
In the second of two special sessions, the state closed a $1.2 billion FY 2002 budget gap. Cuts in excess of $1 billion were spread across all areas of spending. A planned cut in the intangibles tax was suspended to save $128 million. The rainy day fund has not been tapped. |
The budget actions affecting FY 2002 reduced the base budget going into FY 2003 and relieved some spending pressures. With revenues tracking the revised estimate, the outlook for FY 2003 remains optimistic. |
The Senate president is proposing a major tax reform package that would roll back the sales tax rate and impose the tax on services. The proposal also would require a 3/5 vote of the Legislature to enact any new sales tax exemptions. The tax reform package has support in the Senate, but is not viewed as favorably in the House. |
Some challenges are expected from an additional $360 million in enrollment-driven costs for K-12 education and $400 million in caseload expenditures for Medicaid in FY 2003. |
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Georgia |
The revenue forecast has been revised downward by $500 million, from $14.3 billion to $13.8 billion. Collections for the year are likely to be slightly above the revised estimate. Revenues through December, however, are 5.6 percent below the same period last year. |
Medicaid spending is $429 million over budget, which includes obligations from last year and current costs. |
Georgia is facing a budget gap of about $650 million. All reserve funds are full, however, and the state still has a $906 million surplus from last year that will cover this year's budget requirements. The governor requested budget cuts of 2.5 percent for this year. Education and children's programs were exempted. In addition, bonds are being issued for planned school construction costs, freeing up $400 million that was set aside for that purpose. |
The FY 2003 outlook is still pretty good because of the existing surplus and spending cuts. FY 2004 is expected to be a tougher budget year. |
No tax increases are being considered. |
The budget base will be lower because cuts made this year will be carried over into FY 2003. |
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Hawaii |
General fund tax collections through December were on target with revised revenue estimates. A November revision to the FY 2002 general fund forecast reduced projected growth from 4.1 percent to -0.7 percent, a $151.8 million revenue loss. |
The state's children's mental health program, operating under a consent decree, is $10 million over budget. Other minor areas are also over budget, but most concerns center on revenue performance. |
Compared to the budgeted estimate, the total FY 2002 gap is approximately $160 million. The governor ordered a 1 percent restriction on agency spending, saving $16.5 million. If revenues continue to lag, a $160 million transfer is likely from the FY 2001 carryover balance. |
The projected gap for FY 2003 is $150 million. The governor cut 2 percent out of the FY 2003 budget request. The Legislature has asked agencies to consider plans for 3 percent, 4 percent and 5 percent reductions from the FY 2003 budget. |
The governor proposed doubling the liquor excise tax to generate $40 million. No tax proposals are being considered by the Legislature. And the Legislature doesn't support the governor's tax hike proposal. |
The governor is studying transferring $200 million from the Hurricane Relief Fund to cover the projected FY 2003 budget gap. He also proposes a $1 billion capital spending plan to generate $40 million in new revenue. The Legislature has asked agencies to consider plans for 3 percent, 4 percent and 5 percent FY 2003 reductions. The governor has already reduced spending requests by 2 percent. |
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Idaho |
Revenues continue their downward trend, although sales tax collections are holding steady. Original budget estimates predicted a 3.1 percent revenue decline in FY 2002, primarily due to enacted income tax cuts. The revenue decline was re-estimated in November at 8.1 percent. At the end of December, revenues were running 1 percent below that. |
Medicaid is over budget, with a possible $12 million supplemental appropriation needed. The governor has recommended $4 million. The overrun is being driven by caseload increases, prescription drug costs and children's health insurance coverage expansion. |
The governor's spending order, set to expire Jan. 31, is expected to be made permanent in early February. It requires a budget holdback of 2.5 percent for K-12 education and 3 percent for all other government entities. There is also a temporary delay on major construction projects. Capitol renovation is on hold. Consideration is being given to using the April installment of the tobacco settlement fund for general fund purposes. |
Decisions will be made in February on reduction plans that could cut another 3 percent to 10 percent from state agencies in FY 2003. |
No tax increases or other revenue enhancements are under consideration at this time. |
A difficult budget year with spending below current levels is anticipated. |
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Illinois |
Revenues through the first six months of the fiscal year are $474 million (2 percent) below the original budget. This is $85 million less in revenue than the same period last year. |
State group health insurance and Medicaid are over budget. Spending on drug assistance for the elderly is still an issue, but some of the pressure has been relieved with additional federal funds. The governor also has supplemented security spending by $17 million. |
Illinois faces a budget gap of about $500 million. Although the budget has not officially been cut, state agencies have been asked to hold back 2 percent of their general fund allocation. Capital expenditures for prisons have been delayed. State workers are asked to take a furlough day (estimated to save $8 million). The state employee union is fighting this provision, but non-union employees already have begun taking days off. Although $226 million from the rainy day fund has been tapped for cash flow, the state plans to repay it during this fiscal year. |
Analysts think the economy is picking up. Forecasters project $300 million to $500 million in revenue growth for FY 2003. |
The legislature will be looking at options this session. Tax increases are unlikely. |
The governor has twice attempted to increase his authority over the budget, but the legislature has not passed either proposal. There has been some talk of state employee layoffs. |
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Indiana |
Revenues are on target with the revised November forecast, which reduced projected FY 2002 revenues by $540 million(5.7 percent) and FY 2003 revenues by $737.4 million (7.4 percent). |
Medicaid is over budget. |
The budget gap is $1.2 billion for the 2002-2003 biennium. The governor directed state agencies to cut budgets by 7 percent. A few areas, such as emergency services, are exempt. HB 1004 addresses the budget deficit and fiscal restructuring issues. |
The budget gap is $1.2 billion for the 2002-2003 biennium. |
Legislation currently under consideration would make various tax changes in FY 2003. An increase in the state sales tax would generate $393 million in FY 2003. A proposed cigarette tax increase would raise $293.6 million. Other revenue changes would add $353 million to total general revenue collections. |
Legislation under consideration would reduce spending in FY 2003 by $225.4 million. The largest cut would come from school funding ($115.4 million). State police funding would be reduced by $54.8 million. |
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Iowa |
In the adopted FY 2002 budget, revenues were projected to grow 3.8 percent. The revenue estimating conference has revised its FY 2002 estimate twice-first in September to 1.9 percent and then in December to 1.5 percent. Through the end of December, revenue collections were $75 million short of the 1.5 percent growth estimate and $200 million below the original estimate. |
Except for Medicaid, expenditures are on target with the original budgeted estimate. Medicaid spending is projected to exceed its estimate by $70 million. |
The state is coping with a $200 million budget gap. The governor imposed a 4.3 percent across-the-board spending cut. In a Nov. 1, 2001, special session, the legislature restored funds to K-12 education, public safety, public defense, community colleges and corrections. The state still may consider tapping its economic emergency fund. |
The budget outlook is tentative. If the state fails to meet its twice-revised revenue estimate for FY 2002 (1.5 percent growth), it is unlikely to meet its FY 2003 estimate of 2.1 percent growth. |
Tax increases are highly unlikely. |
Finding a solution to the Medicaid spending problem is the first priority. Current proposals include shifting funding for some spending categories to other sources (e.g., shifting state trooper salary costs from the general fund to the motor vehicle use tax fund). Other funds that may be tapped are the tobacco endowment fund or the senior living trust fund. |
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Kansas |
Through December, general fund revenues were $55.6 million (2.8 percent) under the revised November estimate, which lowered revenues by $113 million from the April forecast. Corporate income taxes are responsible for all but $1 million of the shortfall. Sales taxes are coming in above forecast. The November estimate puts revenues at 0.5 percent or $21 million above FY 2001 levels. |
The main areas over budget are in human services: foster care, welfare, Medicaid, adoption services and mental health. A supplemental appropriation of $37 million has been recommended. Other areas of concern include state matching funds for local districts (over budget by $20 million) and corrections. The Department of Revenue lost a corporate income tax refund case in the Kansas Supreme Court Jan. 25. The state may have to pay $26 million in refunds, an expense not considered in the budget. |
No agreement has been reached on how to address the projected shortfall in FY 2002.
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The budget outlook for 2003 is not good. Officials anticipate 4 percent across-the-board cuts. The state is in the middle of a transportation plan and a multiyear plan for higher education that requires increased spending. Some highway projects will be delayed. |
The governor wants to increase the sales tax from 4.9 percent to 5.1 percent, motor fuel taxes by 1 cent per gallon and cigarette excise taxes by $0.65 to $0.89 per pack. He also wants to increase the state car registration fee by 3 percent. The Senate tax committee is looking at other excise taxes. The Senate Ways & Means Committee wants to change the law so the ending balance must be 5 percent, not 7.5 percent, (to be returned to 7.5 percent over the next four years). |
Proposals to balance the FY 2003 budget include a combination of budget cuts and tax increases. Officials also will consider whether to spend down the ending balance. |
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Kentucky |
Revenue collections are on target with the revised FY 2002 estimate of 0.9 percent growth. The revised estimate is $475 million (6.6 percent) less than the estimate included in the adopted budget. Sales and corporate income taxes are the primary underperforming tax categories. |
Medicaid overruns were projected to reach $180 million for FY 2002, but have been addressed through various cost avoidance and cost saving measures. |
Agency-specific budget cuts totaling $533 million were approved last fall. K-12 education was protected from the cuts. The state has reined in Medicaid spending by freezing provider rates and holding down primary care center and pharmacy costs. The state accessed $120 million (about half) of its rainy day fund and incurred savings from improved interest rates on debt service and tapped tobacco settlement funds. |
The budget shortfall has been addressed, but the outlook continues to be weak. The governor has proposed a "bare bones" budget that may be characterized as a flat-line continuation of FY 2002 spending levels through FY 2004. |
No tax increases have been proposed. Raising revenues by allowing video slot machines and/or racetracks have been discussed by various groups. |
State employees will receive a 2.7 percent salary increase, not the 5 percent annual increase written into statute. Other proposals include pulling some "off-budget" accounts back into the budget. For example, there is a local jail construction authority fund from which $15 million may be included in the fiscal biennium 2002-2004 budget (FY 2002 and FY 2003). |
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Louisiana |
General fund revenues through December were coming in ahead of forecast by $53 million (0.8 percent). This is being driven by healthy oil and gas activity and income tax revenues. |
Several budget cat |
