December 7, 2006
State Budget Outlook Is Mostly Solid
Tax categories in a few states show signs of weakness
DENVER - State revenues remain stable for the most part. But in a few places, collections in individual tax categories are not living up to expectations, according to the latest survey of state fiscal offices by the National Conference of State Legislatures.
All 50 states provided information for State Budget Update, November 2006, but only 48 had revenue performance through the first quarter of the fiscal year available. In 23 states, revenue collections are above forecast. Twenty-two states report revenues on target, and three say they are below estimates. Fewer states report above forecast numbers compared with answers from this time last year, when 42 states were bringing in more money than they expected.
While personal and corporate income tax collections are stable or above forecast in most states, NCSL's survey shows an increase in the number of states seeing trouble in sales tax collections. Fourteen states report underperforming sales tax revenue, compared with seven at this time last year.
"The sales tax is showing signs of weakness in many states," says NCSL President Texas Senator Leticia Van de Putte. "We hope the holiday gift-giving season puts that category back on target, and that its underperformance isn't a sign of trouble ahead. States have just recovered from the last fiscal crisis."
Overall, state officials are positive about revenue performance for the rest of the fiscal year, but they're not as positive as they were one year ago. Officials in 16 states have an "optimistic" revenue outlook. A "stable" outlook persists in 28 states, but in six, officials are "concerned." In 2005 at this time, 22 states were optimistic; 26 were stable; one was concerned and one was pessimistic. Since 2002, the "optimistic" line had trended upward and the "concerned" line downward until now.
Report author Corina Eckl, who is director of fiscal affairs at NCSL, says it's impossible to know now whether this is a temporary development or a precursor of future revenue problems.
"State fiscal conditions are solid right now, but they're not as good as they were a year ago," Eckl says. "Revenue concerns are cropping up in some states and a few even anticipate revenue shortfalls next year. As a result, several states report that tax and revenue issues will top their fiscal agendas in 2007 legislative sessions."
This survey asked state budget officers to name the top 3 fiscal issues they expect their state legislatures to grapple with as they craft their FY 2008 budgets. In at least 29 states, education issues will dominate legislative discussions with talk about funding, equity and adequacy, teacher salary increases and school facilities. In at least 23 states, health care and Medicaid are at or near the top of the list. At least 16 states will focus specifically on Medicaid, while other states will look at the uninsured, expanded coverage for all citizens and other issues. Tax policy will be big in at least 16 states, where legislators will debate property tax relief and tax reform plans. In 10 states, transportation or other infrastructure funding will be a big issue.
During the past three years, Congress has shifted more than $75 billion worth of costs to states, further stressing their budgets. Federal programs such as No Child Left Behind, the REAL ID Act, Medicaid and the Individuals with Disabilities Education Act continue to weigh on the expenditure side. NCSL Executive Director William Pound hopes the trend may be coming to an end.
“While it appears states have managed these cost-shifts for the time being, finding ways to pay for federal programs will continue to be a challenge,” Pound said. “Washington's propensity to export the federal deficit to the states is a growing challenge for the states."
Credentialed reporters can ask for a copy of this report in an email to press-room@ncsl.org. Others can purchase the report at NCSL's online bookstore.
NCSL is the bipartisan organization that serves the legislators and staff 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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