Press Release: States Balance Budgets Without Broad Tax Hikes

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July 23, 2003

States Balance Budgets Without Broad Tax Hikes, New NCSL Report Shows

State fiscal officers suggest revenues could rebound in new fiscal year

SAN FRANCISCO - The states that have balanced their budgets amid this fiscal crisis - the worst in decades - have done so largely without relying heavily on broad tax hikes, according to the National Conference of State Legislatures’ latest fiscal report, State Budget and Tax Actions 2003. Forty-three of the 49 states required to balance their budgets have completed the process, and they’ve turned first to their reserves, specific fee increases and cost-cutting measures, the report shows.

The 2003 net increase in taxes at this point, with 42 states reporting, is 1.3 percent of 2002 tax collections. That number may change as more states balance their budgets. But this is only the second time in nine years states have had to bump taxes up. From 1995 to 2001, states lowered taxes every year, as much as 2 percent.

“After three daunting years of financial crisis, state legislators should be lauded for resolving some of the most formidable budget problems seen in decades,” said NCSL President Angela Monson, a Oklahoma state Senator. “State lawmakers have done what they had to do. They made the wrenching decisions necessary and they balanced their budgets.”

As states tapped reserves to help balance budgets, aggregate budget reserves have fallen. They dropped 48 percent over the past fiscal year, from $22.4 billion at the end of FY ’02 to $11.6 billion at the end of FY’03. The aggregate balance combines states’ general fund ending balance with their rainy day funds.

The states may finally be turning the corner, though, after quarter upon quarter of impending gloom. State fiscal officers are predicting that revenues will rebound in FY ‘04. In 2004, general fund ending balances are expected to rise slightly from FY ‘03 levels. No state is predicting a deficit at the end of this fiscal year.

“We are all hopeful that this latest round of actions will get us through the year without having to revise our spending plans,” Monson said.

During the past three years, states have had to close a cumulative $200 billion budget gap. In addition to fee and tax increases, to balance FY ‘04 budgets:

Thirty-one states cut spending. Fourteen of these imposed across-the-board cuts ranging from 1.5 percent to 15 percent. In addition to broad cuts, many also imposed target cuts to programs including corrections, Medicaid and higher education.
Twenty-nine states tapped a variety of state funds.
Twenty-three states reduced their state workforces or took other actions affecting state employees.
Thirteen states tapped rainy-day funds. Because some states are trying to maintain their funds at some minimum level, they were reluctant to draw from funds they had already reduced in previous years.
Eleven states delayed capital projects or shifted them from pay-as-you-go projects to debt.
Six states expanded gaming.

NCSL is a bipartisan organization serving the legislators and legislative staff of the states, commonwealths and territories. Its mission is to improve the quality and effectiveness of state legislatures, foster interstate communication and provide the states a strong, cohesive voice in the federal system.

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