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Robust State Budgets Show Signs of Economic Recovery, Survey Finds

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State governments are showing wide-ranging signs of recovery from the recession that shocked and paralyzed them early in the 1990's, a survey of state finances shows.

From increased tax collections to robust year-end balances, state budgets are showing the signs of a solid national economy, according to the "Fiscal Survey of the States," released last week by the National Governors' Association and the National Association of State Budget Officers.

State general-fund spending increased by 6.6 percent between fiscal 1994 and fiscal 1995. The smaller estimated growth of 2.5 percent for fiscal 1996 is attributed to the mood among governors and lawmakers to find ways to reduce taxes and spending.

Twenty-eight states are considering plans to reduce taxes, the survey found. Most often, the targets are personal and corporate income taxes. Income-tax modifications are also being proposed, often aimed at finding ways to increase exemptions and deductions for working families. Ten states are considering sales-tax changes.

Also on the tax front, several states are looking for ways to wean public school budgets away from reliance on local property taxes. Education programs also are feeling the national trends of downsizing state bureaucracies and cutting state mandates.

Healthy Balances

Signs of a growing economy are especially strong in the Plains states, where unemployment is lowest and personal-income growth is highest, the report says. The New England economy, hit hard by the recession, continues to expand, and states on the West Coast are seeing improvements.

Signs of slowing economic activity were found in the Middle Atlantic states and in the Southeast, but the survey said that even with some slowdown, both regions were faring better than in recent years.

One sign of the improved fiscal climate is in the states' year-end balances, which had dipped to about 1.1 percent of their general-fund budgets at the height of the economic downturn in fiscal 1991.

In both fiscal 1994 and the latest estimate for fiscal 1995, the average balances exceeded 5 percent, the amount that the N.G.A. considers a prudent reserve.

However, the report found some nagging signs of trouble. Eight states estimate that their year-end balances will be less than 1 percent. And 12 states reported having to make midyear cuts in their budgets for the current fiscal year, 1995, because of unexpectedly high costs or low tax collections.

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