July 20, 2004
State Budgets Rebounding, But Tough Road Looms Ahead For
Lawmakers
Course unclear as states transition fiscal years, new NCSL report
shows
SALT LAKE CITY - States may be on the home stretch of a marathon
budget crisis, a new survey by the National Conference of State
Legislatures shows. "State Budget & Tax Actions 2004: Preliminary
Report," released today during NCSL’s Annual Meeting, indicates that
states ended fiscal year (FY) 2004 with higher ending balances than last
year. But those balances are expected to fall by the end of FY 2005.
During the past four years of budget woes, states closed more than $235
billion in budget gaps, but lawmakers remain wary of FY 2005. States must
find money to pay for programs they covered with temporary federal funds
last year. And they are feeling pressure to make up for several years of
painful cuts to programs.
"When budgets started their downturn in 2001, state legislators knew
they were in for a difficult run, but they didn't expect a marathon," said
NCSL President Marty Stephens, speaker of the Utah House. "Though we've
seen some improvement in fiscal conditions, there's still a long way to go
before we cross the finish line of this crisis."
Each July, NCSL surveys state legislative fiscal offices to summarize
state budget and tax actions taken in the fiscal year ending June 30, and
to project data for the next 12 months. NCSL received data from 44 states
for this report. The data could significantly change, however, because the
six states that have not yet passed FY 2005 budgets - California,
Illinois, Kentucky, Michigan, New York and North Carolina - account for
about a third of the total national state budget picture.
The survey found that by the end of FY 2004 in the 44 reporting states,
year-end balances increased 50 percent over last year - from $12.2 billion
to $18.4 billion. Balances rose in 26 states, but declined in 18. Seven
states' balances exceeded 10 percent of their budgets, and 11 states'
balances exceeded 5 percent, the level Wall Street analysts recommend.
Also, state rainy day fund balances rose slightly in 2004, from $7.9
billion to $9.5 billion.
States were able to close an $84 billion budget gap in FY 2004 in part
due to $20 billion in fiscal assistance from the federal Jobs and Growth
Tax Relief Reconciliation Act of 2003. These dollars artificially inflate
state revenue figures in FY 2004, though. NCSL's report shows state
revenues were 5.4 percent higher in FY 2004 than they were in FY 2003.
FY 2004 general fund spending grew 2.4 percent, collectively, in the 44
reporting states. Education benefited during the 2004 budget year. General
fund spending for K-12 education grew nearly 5 percent, compared with 3
percent in FY 2003. Higher education grew 3.2 percent after falling more
than 0.5 percent in FY 2003.
States used a variety of strategies to balance their FY 2005 budgets.
Overall, they had to turn to fewer tactics to help close the collective
budget gap of more than $36 billion. Twenty-two states tapped various
state funds; 15 states cut spending; 10 states used portions of their
rainy day funds; six states used tobacco settlement funds. To balance FY
2004 budgets, by contrast, 42 states cut spending; 13 looked to rainy day
funds; and 13 used tobacco settlement money. States raised taxes, fees and
other revenues by $3.5 billion to balance FY 2005 budgets, compared with
$13.1 billion last year.
For FY 2005, which began on July 1 for most states, legislative fiscal
offices project a decline in state balances. They expect general fund
ending balances to decline to 3.7 percent, nearly two percentage points
lower than the FY 2004 level.
General fund appropriations for FY 2005 are budgeted to grow 6.4
percent in the 44 reporting states, the report said, reflecting state
replacement of federal funds and funding enhancements to programs that
were cut in recent years.
Medicaid continues to be a powerful budget driver. General fund support
for Medicaid is expected to grow more than 13 percent in FY 2005, in part
due to states backfilling the temporary federal aid that supported last
year's budgets. States reported that Medicaid increases would have been
even higher but for the implementation of cost containment measures.
"It’s been another tough legislative session for states," said NCSL
Executive Director Bill Pound. "But they’ll emerge from this fiscal
marathon leaner and in better shape for the future."
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.
###
|
