States see funds grow after years of weakness

By: - July 8, 2005 7:19 am

Wilmington StarNews Online

Driven by robust tax revenues, state finances are surging again after years of anemic growth, giving governors and lawmakers an infusion of cash to spend on raises for state workers, preschool programs for the poor, and new roads.

The nation’s governors reported Thursday that soaring income, sales and corporate tax receipts beat expectations in 42 states during the budget year that ended in June. That is a stark reversal of fortunes from the dark days of 2002, when 42 states saw revenues fall below estimates.

"There’s no question, we’ve turned the corner," said Iowa Rep. Bill Dix, chairman of the House committee that helps write his state’s $5.1 billion budget.

Still, long-delayed spending needs and the rising costs of education and Medicaid, the health care program for the poor, are placing heavy pressure on state budgets. The report urged caution, warning that states faced difficult choices ahead.

But in comparison to the past three years, the study by the National Association of State Budget Officers and the National Governors Association, coupled with several other recent reports, portray a remarkable economic turnaround during the 2005 fiscal year. All but four states operate on a fiscal year that runs from July through June.

"The good news is that states’ fiscal conditions have really stabilized," said Scott Pattison, executive director of the budget officers group.

Among the reports’ findings:

REVENUES were 2.1 percent higher than estimated, with corporate taxes alone 8.8 percent above estimates. A separate report found that tax revenue in the January-through-March quarter alone rose 11.7 percent from the previous year’s quarter, the highest rise since 1991.

SPENDING was up 6.6 percent from fiscal year 2004 in state general funds, after three years of much slower growth.

ONLY FIVE STATES had to make cuts after they had passed their 2005 budget, down sharply from 2004, when 18 states had to cut budgets midyear. In both 2003 and 2002, 37 states had to cut budgets midyear.

For Mr. Dix, the Iowa lawmaker, strong growth in sales and income taxes gave lawmakers an extra $340 million to spend.

New money went to Medicaid and K-12 education. State workers got raises. Gov. Tom Vilsack won funds to expand preschool programs to more poor children. Another $300 million went to replenish reserve funds that helped the state get through the tough times of the past few years.

But some state officials remain cautious.

"We really do not have clear enough trends, especially with the $60 oil (per barrel), to be assured that this year’s improvements will continue," said North Carolina Democratic Rep. Paul Luebke, where lawmakers and Gov. Mike Easley are still arguing over their 2006 budget.

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Chris Fitzsimon

Chris Fitzsimon, Founder and Executive Director of N.C. Policy Watch, writes the Fitzsimon File, delivers a radio commentary broadcast on WRAL-FM and hosts "News and Views," a weekly radio news magazine that airs on multiple stations across North Carolina. [email protected] 919-861-2066