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'Resilient' Economy Is Predicted To Spur 4% Boost in Spending

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State legislatures will start the new year with the healthiest balances since 1980 and a rosy financial picture overall, according to a survey.

Across the country, state spending in fiscal 1997 is expected to rise by about 4 percent, while tax proceeds drop slightly, the National Governors' Association and the National Association of State Budget Officers reported last week. A "resilient" economy is creating strong but cautious budget forecasts in the states, the twice-yearly report says.

Raymond C. Scheppach, the NGA's executive director, said that states will emphasize "efficiency and austerity" over general spending increases.

But most observers looking over the budget picture say that conditions next year will favor growth in government programs.

Unlike many previous years, funding for education is not at the top of state lawmakers' lists for 1997. Instead, the report says, managing welfare reform, a job handed down from Washington earlier this year, is a top concern. The report also notes that Medicaid funding and state employees' pay are high on the list for new money.

State officials are also spending a fair amount of time trying to work on the budgeting process itself.

"The convergence of level federal revenue and the public's distaste for tax increases is providing the impetus for state management changes," the report says. "The performance and reputation of government services is at stake."

Strong Reserves

The move toward streamlining state government has left few marks on school programs, according to the report. The most notable state change over the past year linked to efficiency was reduced school vision and hearing services and the elimination of elementary school language arts funding in Hawaii.

As states look toward next year's legislative sessions, the fiscal outlook is brightest in the Rocky Mountain states and the Southwest. California and the Pacific Coast states also have strong economies. The report finds that growth is most sluggish in the Middle Atlantic States and New England.

Balances at the end of the 1996 fiscal year had dropped slightly from an earlier high, but remain at healthy levels. State budget officials say keeping 5 percent of general-fund spending as a reserve should be each state's goal.

More than half the states weigh in with reserves of 5 percent or more. Eight states--Alaska, Delaware, Indiana, Iowa, Michigan, Nevada, Oregon, and Wyoming--will open their legislatures with budget reserves of more than 10 percent.

The report also included the following budget facts:

  • State budgets in fiscal 1996 totaled $376.4 billion in tax collections and $362.8 billion in spending. State spending ranged from $45.4 billion in California to $459 million in Wyoming.
  • State budgets in fiscal 1997 are expected to total $387 billion in revenues and $377.5 billion in spending.
  • State spending changes between 1996 and 1997 will range from a drop of nearly 4 percent in Alaska to an increase of about 14 percent in Wisconsin, where the state this year is assuming a larger portion of overall school spending.

For More Information:

"The Fiscal Survey of States" is available for $25 a copy from the National Governors' Association, 444 North Capital St., Suite 267, Washington, D.C. 20001-1512; (202) 624-5300.

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