April 10, 2006
State Fiscal Footing Stable Today, Uncertain Tomorrow, New NCSL Report Shows
DENVER - Two thirds of the way through the fiscal year, state budgets are stable and states are putting their balances toward programs that haven't seen many new resources during recent years of budget crisis, according to the latest fiscal report from the National Conference of State Legislatures.
Higher education, capital projects, transportation, unfunded pension liabilities, tax relief and rainy day funds are some of the more popular places states are putting year-end balances.
"This news is good, but it's not the whole story," said Illinois Senator Steve Rauschenberger, NCSL's president. "Spending pressures continue to mount for states and the federal government continues to impose unprecedented unfunded mandates on states."
Between FY '01 and FY '05, states closed a collective budget gap that exceeded $265 billion. States turned the corner in FY '04. And now fiscal offices in 42 states report that they expect to end FY '06 with a collective $28.9 billion year-end balance. Of the 41 states that have revised their revenue forecasts since the start of the fiscal year, collections are exceeding expectations in 18, on target in another 18, and below forecasted levels in only one.
Eight states report that all major tax categories are performing strongly or above expected levels. Another eight report that collections on or slightly above target. Most other states report mixed performance. Business taxes are especially strong. Personal income and sales taxes are performing well in most states as well.
While this snapshot gives states a clean bill of fiscal health today, it portends trouble ahead. The growing costs of operating expensive programs like Medicaid, corrections, and K-12 education are causing budget overruns in some states. States are able to manage these overages this year. But by 2007, 10 expect structural deficits to catch up with them. That number grows to 19 by the end of FY '08.
Vermont, for example, places spending trends at 6 percent, with forecasted revenues at 4 percent. In Maryland, general fund spending is growing at 11 percent, while revenue growth is projected at less than 6 percent.
"The fact that states predict they'll end the year with balances does not mean that their finances are stable in the long term in every case," said NCSL Executive Director Bill Pound. "Some states had to borrow to get through difficult budget times."
For a copy of State Budget Update: March 2006, 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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