December 10, 2007
State Finances are Weakening
A new report by the National Conference of State Legislatures shows increased concern over state revenue performance.
DENVER - Slow revenue growth rates mean states' budgets continue to weaken, according to a new report by the National Conference of State Legislatures.
NCSL's State Budget Update: November 2007 is a result of a survey of legislative fiscal directors in all 50 states and Puerto Rico. The report covers the revenue and expenditure situation for the first four months of fiscal year (FY) 2008 for most states. It includes information on revenue performance, spending overruns, projections of budget gaps or surpluses, and the top fiscal issues anticipated for the 2008 legislative sessions. It also includes a special focus on the effects of the housing sector slump on state revenues.
Twenty-four states and Puerto Rico reported state revenues have been hurt by the housing sector slump. At least a dozen states and Puerto Rico are seeing declines in their real estate transfer or recording taxes. Many states anticipated a slowdown in this revenue source, but the drop is even higher than expected.
Legislative fiscal directors identified health care and Medicaid, along with transportation, as key budget issues their legislatures will address in 2008. At least 16 states are expected to address a variety of K-12 issues, including funding levels, and at least 13 states and Puerto Rico are expected to consider overall budget issues.
"The condition of a state's budget determines how much flexibility lawmakers will have to address a wide range of fiscal issues during their 2008 legislative session," said William Pound, executive director of NCSL, "and particularly of pressing issues include funding for education and health care." Together, these two areas account for half of general fund budgets.
Twenty-two states have revised their FY 2008 revenue forecast. In one half of those states, including California, Florida and New York, it was lowered. The other 11 states, which include Iowa, Texas and Utah, raised their forecasts. Alaska expects an upward revision to reflect the current oil market and a recent tax change.
The report finds that at least nine states and Puerto Rico reported collections were below forecast. The amounts were sizeable in Arizona: collections were 7.3 percent below the estimate. In California collections were $1.1 billion (3.8 percent) below forecast.
"This assumes no national recession. If the economy takes a turn for the worse, state finances undoubtedly will decline from the situation NCSL has reported," said Pound.
Fortunately for states spending plans appear to be stable in the early months of FY 2008. A quarter of the states and Puerto Rico report modest overruns. Special education costs are over budget in Connecticut and Kansas. Medicaid is exceeding budgeted levels in Arizona and Maryland. Maryland and Vermont are also seeing a cost increase for low-income energy assistance programs.
NCSL's State Budget Report: November 2007 is free to credentialed members of the media. Request a copy in an email to press-room@ncsl.org. Others can purchase the report. For details on how, visit NCSL's Bookstore.
The National Conference of State Legislatures 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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