April 28, 2004
State Budget Gaps Shrink, NCSL Survey Finds
States report modest budget improvements
DENVER - More than half the states are projecting surpluses by the close of the current fiscal year, a sharp contrast to the situation they faced a year ago, according to a new report by the National Conference of State Legislatures.
At this time last year, states were still struggling to close a cumulative $21.5 billion budget gap. Now, they are working to close a total gap of $720 million, according to State Budget Update: April 2004. Additionally, 32 are forecasting surpluses by the end of FY 2004, which ends June 30 for most states. These projected surpluses are the result of improved collections in major revenue categories and the difficult paring of programs. The surpluses are not large. And they didn’t accumulate painlessly.
Nine states expect surpluses below 1 percent of their general fund budgets. In Florida, Nevada, Oklahoma, South Dakota and Wyoming, the surpluses are larger than 5 percent. But this breathing room comes after three consecutive years of fiscal crisis, when states had to cut funding in such core areas as education, health care and corrections. Some states tapped rainy day funds, increased fees or raised taxes on items including cigarettes, health insurance and phone service to help make ends meet.
"States are turning red ink black," said NCSL Executive Director Bill Pound. "They should be praised for their diligence and their willingness to make tough and often unpopular decisions that were necessary to get through the fiscal crisis. States are also grateful for help from the federal government this past year."
Federal aid in 2004 provided $10 billion in Medicaid relief and $10 billion in discretionary funds.
At least two-thirds of states report higher-than-expected revenue performance in at least one major tax category. Personal income taxes were above estimates in 18 states, and on target in 12. Final figures won't be available for this category until next quarter. Twenty-two states report that sales tax collections are higher than forecasted. And corporate income tax collections are exceeding expectations in more than half of states. They're on target in 11 others.
Budgets don’t look healthy in FY 2005 just yet, although they are an improvement over the fiscal situation states faced going into FY 2004. Thirty-three states are resolving budget gaps as they negotiate their FY 2005 budgets. The aggregate gap reached $36.3 billion, half as high as the gap states faced going into FY 2004.
| Number of states with ... |
Fiscal Year 2004 |
Fiscal Year 2005 |
| ...Gaps at the start of budget negotiations |
42 |
33 |
| ...Gaps above 5% |
37 |
16 |
| ...Gaps above 10% |
19 |
8 |
| Highest budget gap estimate: |
$78.4 billion |
$36.3 billion |
Some states are expecting a positive picture. At least 12 project surpluses, bringing the cumulative surplus to about $1.9 billion. These surpluses continue to be modest, though, with Hawaii, Ohio, Oregon and Texas reporting surpluses equal to less than 1 percent of their budgets.
"The national economy seems to be improving," Pound said. "But all states have not felt the full strength of the recovery."
Copies of State Budget Update: April 2004 are free to members of the media. For a copy, contact the public affairs staff at press-room@ncsl.org. Those who are not reporters may purchase a copy of the report for $30 by contacting NCSL's publications department at 303-364-7700 or sending an email to books@ncsl.org.
NCSL is the bipartisan organization that serves the legislators and staffs of the states, commonwealths and territories. It provides research, technical assistance and opportunities for policymakers to exchange ideas on the most pressing state issues and is an effective and respected advocate for the interests of the states in the American federal system.
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