December 15, 2005
State Revenues Healthy In First Quarter of FY 2006
Medicaid, education, energy costs drive budget overruns, NCSL report shows
DENVER – States have largely recovered from the budget crises that tied legislators' hands for nearly five years, figures from the National Conference of State Legislatures’ latest survey of legislative fiscal offices show. But spending pressures loom as lawmakers gear up for 2006 sessions.
Virtually all state revenue sources performed well during the first quarter of FY 2006, according to State Budget Update: November 2005. Collections were above forecasted levels in 42 of the 49 states with revenue performance information available. Collections were on target in six states and below in one – Rhode Island.
Personal and corporate income taxes came in strong in most states, and five states noted high estate tax revenue. Sales taxes weren’t as robust as expected, however. Seven states reported below-forecast sales tax collections through the first quarter of the fiscal year. Nevertheless, the overall revenue outlook for the rest of FY 2006 is positive. Twenty two states have optimistic forecasts and 26 have stable outlooks. Rhode Island budget officials are concerned and Louisiana’s are pessimistic. At the low point in states’ economies in 2002, 29 states were concerned about revenue performance and nine were pessimistic.
While the fiscal future is certainly brighter, it’s not cloudless. Unfunded federal mandates continue to hamstring states. NCSL identified $51 billion worth in FY 2004 and 2005, and the FY 2006 federal budget proposal includes at least another $35 billion, depending on the outcome of the budget reconciliation debate.
Since FY 2001, state legislators have closed an aggregate $263.8 billion gap. Now spending demands are coming from programs that have yet to be replenished, as well as rising new costs in areas such as healthcare, education and energy assistance. Nineteen states reported spending overruns at the end of the first quarter of FY 2006, compared with 23 at this time last year. Medicaid is over budget in 12 states; corrections in seven; and education in three.
Energy costs and home heating assistance programs are already exceeding budgeted amounts in six states, and as many as 17 expect to consider or make supplemental appropriations for those purposes in their 2006 sessions.
Other fiscal issues will dominate when legislatures reconvene next year. NCSL’s survey asked legislative fiscal directors to name the top three fiscal issues lawmakers in their state would debate. Medicaid – the fastest growing component of states’ budgets – is No. 1 again, with 23 states naming it as one of the top three. Education is another priority, with 15 states putting it high on their lists. Taxes will top discussions in 14 states, with seven ready to explore property tax relief or reform. Tax and expenditure limits will come up in six states and 10 will consider funding for transportation and other infrastructure projects. Corrections issues are high on the agenda in five states, and hurricane recovery in two.
“Every issue is really a fiscal issue,” said NCSL Executive Director Bill Pound. “That’s why when state economies suffer, state services follow suit. States have climbed out of their budget deficits, and now they’re working on the service deficits.”
For a copy of State Budget Update: November 2005, send an email to press-room@ncsl.org. Copies are free to credentialed members of the media. Others can purchase it at NCSL’s book store, www.ncsl.org/bookstore.
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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