State leaders see strengthening economies
States are reporting overwhelmingly sunny budget forecasts for the upcoming election year, and lawmakers at a Chicago hotel Friday for the fall meeting of the National Conference of State Legislatures were in an upbeat mood.
“The last several years, you were a bit helpless in trying to deal with the flood of problems,” said North Carolina state Rep. Rick Glazier, a Democrat who helps write his state’s budget. “We’ve moved from frustration to cautious optimism. We’re not going out and jumping for joy.”
Legislators’ experience with the last boom explains their caution. Nearly every state saw a hard fall after the enthusiastic spending of the late 1990s, and now immediate demands on their cash abound, including rising Medicaid and other health care costs.
Still, a glimpse at early results the NCSL’s latest financial survey shows how far states have come. In November 2002, 38 states were concerned or pessimistic about their revenue outlook for the coming year; only two were optimistic.
This fall, 22 states reported an optimistic outlook for the rest of the fiscal year, which runs through June for all but four states. Twenty-six more states reported stable budgets. Only one was concerned and one pessimistic. The NCSL’s formal report is due next week.
“The states are beginning to make up for some of the tough decisions they had to make in the past two or three years,” said William Pound, executive director of the NCSL.
Kansas state Rep. Melvin Neufeld, a Republican who heads the House Appropriations Committee, said “this may be one of the best years, as far as tackling the budget before us.” Kansas lawmakers have a larger-than-expected surplus and more cash for the coming fiscal year, that begins in June.
But Neufeld put the brakes on any hopes for expansive new spending: “It’s not extra money ? it’s just enough money to cover the bills.”
That’s the problem many legislators said would face them in January, when new sessions begin in all but four states. Pent-up demand for programs that have been restrained or cut in recent years will quickly lay claim to any revenue.
Other worries with potentially costly outcomes loom. In Kansas, lawsuits over education equity between districts could swallow up a surplus and then some, said Senate President Stephen Morris, a Republican. In Delaware, state officials are bracing for potential job losses as financial giant MBNA, the state’s largest private employer, is being acquired by Bank of America, said Rep. Donna Stone.
Medicaid, the federal-state health care program for the poor, continues to be a budget problem. Nearly half the states ? 23 ? cited Medicaid or health care as their top fiscal worry.
And many have a long way to go to bring their state spending back to the level it was at before the economy went south, or to fill the holes in their budget that were created to survive the lean years. Neufeld, in Kansas, said lawmakers need to start repaying about $120 million that they borrowed from the state’s highway fund to pay for other government programs when finances were rockier.
North Carolina needs to revisit spending on education, criminal justice and health care that for the past several years have been essentially flat-lined, Glazier said.
Other areas likely to be at the top of legislative agendas are roads, property taxes, pensions and prisons, according to the legislative survey.
Some think the good times can’t stay this good for long.
Marcia Howard, an analyst with the Washington-based organization Federal Funds Information for States, said it was unlikely that states would continue to see the 8 percent to 10 percent growth in personal income tax that they’ve collected in the past few years. A drop-off could undermine budget planning.
More broadly, state leaders have been unable or unwilling to address deeper structural problems of their tax systems, which are built on sales and income taxes. Analysts argue these don’t effectively capture the modern, service- and Internet-based economy of the 21st century.
“This is a tale of two budgets,” said Corina Eckl, author of NCSL’s survey. “In the short term it looks good. In the long term, it’s a different story.”
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