December 9, 2004
State Budget Revenue Pressures Ease, But Expenditure Concerns Remain
Health, education concerns top states' list of 2005 fiscal priorities
SAVANNAH, GA - While revenue pressures on state budgets have eased, state legislatures will still have to make difficult decisions due to increasing Medicaid costs and demands from other programs weakened by four years of significant budget cuts.
The National Conference of State Legislatures today released the results of a new 50-state survey of state legislative fiscal officers that shows more money is flowing into state coffers, but it's not expected to be enough to relieve health and education funding pressures for fiscal year (FY) 2006 in many states.
State Budget Update: November 2004 shows that revenues for the first few months of FY 2005 are at or above projections in almost every state. Budget overruns are less severe than in recent years. And budget gaps are practically non-existent.
At the same time, officials in 22 states said budget problems will take up much of legislators' attention in the upcoming session as they craft their spending plans for FY 2006. Lawmakers must find a way to replace one-time revenues they used to balance FY 2005 budgets. Legislators in most states must contend with rising health care costs, a reduction in the Federal Medical Assistance percentage and funding needs in elementary and secondary education programs.
"Revenue improvement is extremely welcome news," said NCSL President John Hurson, a Maryland Delegate. "However, higher Medicaid costs and concerns for programs that have been cut or underfunded in the last few years will put tremendous pressure on state budgets."
Revenues for the first few months of FY 2005 are performing substantially better than they have in recent years, and 26 states already have revised projections. The three states that report revenues below forecast are Michigan, New Jersey and Tennessee. The situation is expected to change later this fiscal year in New Jersey, however, as money from a new tax increase hits state coffers in the spring.
Personal income and sales tax collections—about two-thirds of state tax collections—are above target in almost every state. Corporate income taxes, a comparatively small revenue source for states, also are coming in above expectations. Some states have reported major growth compared with estimates. Arizona's corporate income taxes are 47 percent higher than expected. Georgia, Kansas, Maine and others also are collecting much more revenue in this category than they forecast.
Since FY 2001, lawmakers have closed an aggregate budget gap of more than $235 billion, with $36 billion of this amount closed in the enactment of FY 2005 budgets. NCSL's new report shows that just three states are reporting budget gaps now, for a total gap of $568 million. Michigan reports a 2.2 percent imbalance. Nebraska has a 2.2 percent gap taking into account the state's statutory minimum reserve requirement. New Hampshire has a 3.1 percent shortfall. The chart below shows the improvements states have seen in their budget situations during the past three years.
Legislative fiscal officers were asked to identify what they believe will be fiscal priorities in the 2005 sessions. Despite improvements in state finances, officials in almost half the states said budget problems, in a broad sense, will be a major issue in their 2005 sessions. Medicaid, health care costs and other health matters will top agendas in 30 states. K-12 education will be a fiscal priority in 26 states. Tax reform will be a focus in 10 states. Fiscal directors also named public safety and corrections, transportation, gaming, higher education and human services as important fiscal concerns for upcoming sessions.
"The 2005 sessions will pose challenges for legislators across America," said NCSL Executive Director Bill Pound. "There will be challenges in preparing the FY 2006 budgets, including changes in Medicaid funds distribution and the continued fiscal strain of No Child Left Behind. State legislators look forward to the continued improvement of the national economy and are grateful for the direction it's headed.”
Copies of State Budget Update: November 2004 are complimentary for legislators, legislative staff and credentialed members of the media. Journalists should send an email to press-room@ncsl.org to obtain a copy. Others may contact NCSL's Publications Department at 303-364-7700 or books@ncsl.org.
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.
|
Number of States With... |
FY 2003
(11/02) |
FY 2004
(11/03) |
FY 2005
(11/04) |
|
...budget gaps |
31 |
10 |
3 |
|
...revenues above forecast |
8 |
21 |
36 |
|
...revenues on target |
8 |
13 |
10 |
|
...revenues below forecast |
23 |
16 |
3 |
|
...stable or optimistic revenue outlook |
10 |
32 |
48 |
|
Cumulative Budget Gap |
$17.5 billion |
$2.8 billion |
$568.1 million |
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|
