States finances looking better compared to past years
While parts of the country remain financially vulnerable, a new report says states are seeing an overall turn for the better, with troubling shortfalls shrinking to a tenth of the size of last year’s budget gaps.
In total, the states finished the second quarter of the 2003-04 fiscal year $2.5 billion in the red, compared to $25.7 billion a year ago, the National Conference of State Legislatures said in a report released Thursday. Other signs of improvement included 30 states projecting budget surpluses this year, and revenues on target or better in nearly three of four.
Still, while the short-term news may be encouraging, experts and analysts warned that there are worrying signs for the years to come.
One-time money-raising avenues and federal help for most states were exhausted fighting through the economic downturn, and neglected problems now must be addressed — from replacing school buses to raising state workers’ pay. Meanwhile, health care costs keep rising, said Corina Eckl, senior fiscal analyst at NCSL.
“I wouldn’t say they’re doing good. The situation is stabilized,” she said. “If you think about this in a health care analogy, you’d say that state finances were ailing the past couple years, many are in a recovery mode, but they’re still not healthy.”
The NCSL, representing state lawmakers across the country, conducted a midyear survey of finances in 46 states; for most, the fiscal year begins in July.
The report found:
— Eighteen states are currently seeing costs outrun revenues this year; that’s half the 36 that were in the hole last year. In five states, the spending gaps are bigger than 5 percent of the budget, compared to 15 states last year.
— Thirty-eight states reported a stable or optimistic revenue forecast for the rest of the year, compared to 13 last year.
— For the fiscal year beginning July 1, 31 states are projecting shortfalls, with an estimated total of $35.6 billion. (California alone accounts for $15 billion of that prediction). Last year at this time, 36 states expected shortfalls totaling $68.7 billion.
States are particularly hard hit in the Midwest, especially in the Great Lakes areas, Eckl said.
“The recovery just hasn’t come to Illinois,” said state Sen. Donne Trotter, a Chicago Democrat who chairs the Senate revenue committee. “We are up against the wall.”
Last year, the state restructured pension debt and moved to sell the state building in downtown Chicago. “We can’t keep doing that. We only have one building to sell,” he said.
Much of the improvement this year can be attributed to hard choices made in the past two or three years, whether cuts, borrowing or tax increases. States overall raised a $20 billion in higher taxes over the past two years and the federal government’s $20 billion bailout last year won’t be repeated.
But there are still needs, from health care to education to transportation, that aren’t going away, and slow-growing state revenues won’t cover them, said Stephen Klein, the legislative fiscal officer for Vermont.
“A lot of states made a lot of hard choices to get spending down, but you still have these underlying pressures,” Klein said. “We’re by no means in a position of clear sailing.”
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