Fewer States Facing Budget Shortfalls, Survey Says

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State legislatures will start the new year in their best financial position of the 1990's, a survey released last week by the National Conference of State Legislatures at a meeting in Denver suggests.

Analysts noted, however, that the states' improved standing is due in large part to lowered expectations that have finally met with the lean times.

While officials also see signs of a modest economic upturn, most states are still under pressure to balance their budgets, according to the survey.

"Tax increases will be high on the agenda in many legislatures,'' the report predicts. "Cost overruns for Medicaid are common, and K-12 education and corrections are running over budget in some states.''

For the first time since the recession began three years ago, more states have found that tax collections are keeping pace with their original budget projections--a late triumph for fiscal forecasters, who have repeatedly overestimated economic activity and revenues.

10 States Face Deficits

The survey, conducted last month, found that only 10 states and the District of Columbia were facing budget shortfalls, compared with 24 states that were in that position at the same time last year.

The states that are at least 1 percent below their budget targets are California, Hawaii, Kentucky, Louisiana, Maryland, Michigan, Ohio, Oklahoma, Rhode Island, and South Carolina. Four of those states have already made mid-year corrections to shore up their fiscal 1993 budgets.

Among the encouraging signs, no states in New England--the region hit first by the current round of budget troubles--wound up on the shortfall list. The N.C.S.L. said Connecticut, Massachusetts, and New Hampshire officials reported upturns in sales- and business-tax receipts.

The report found that the three years of budget shortfalls have made state officials more cautious in planning spending.

The average revenue growth predicted by states for fiscal 1993 was 4.8 percent--a virtual standstill if inflation for the year holds at the projected 4 percent.

The budget officials are expected to cling to the conservative predictions in the upcoming budget year, according to the N.C.S.L. The survey found that the average prediction for the fiscal 1994 revenue-growth rate is expected to be about 4.2 percent, once again hovering near the inflation rate.

"If only revenues were the issue, most states would now be in satisfactory fiscal condition,'' the report notes. "Unfortunately, expenditures are tipping budgets out of balance.''

Runaway Spending

Health-care spending, particularly the state share of Medicaid costs, is running over budget in 22 states, including Georgia, Indiana, and Oklahoma, where officials said budget cuts are likely in the months ahead. Lawmakers in Arkansas, meanwhile, passed a tax increase last month to balance the budget, which was experiencing health-care overruns.

Elementary and secondary education programs are running over budget in Alaska, Kansas, Montana, and Washington State, but officials in those states do not currently anticipate the need for cuts or tax increases. In Arizona and California, however, where education spending is also running ahead of the budget, deficits are anticipated.

Because budget reserves have been depleted in recent years in many states, excessive spending or weak collections are likely to require legislative action, the report notes.

Thirteen states have already reduced budgets below their original appropriations and 10 more are considering cuts, the N.C.S.L. found.

Looking ahead to fiscal 1994 budgets, which will be written during the upcoming legislative sessions, budget straits appear the most dire in California, where officials now anticipate a $7.5 billion shortfall.

Authorities in New York reported a potential deficit of about $3 billion, while Texas lawmakers, who will work on a two-year budget during their upcoming session, must contend with a $5 billion deficit projection for the 1994-95 biennium.

Similar uphill budgeting battles will also be fought in such states as Connecticut, Iowa, Maine, Massachusetts, Minnesota, New Hampshire, Oklahoma, Oregon, Rhode Island, Vermont, and Washington State, where spending demands appear to be running well ahead of expected tax receipts.

'Fundamental Change' Needed

Such figures, analysts noted, are sure signs that financial troubles will linger as a top state issue.

"Budgets will remain a problem,'' said Ronald K. Snell, the fiscal-program director for the N.C.S.L.

"It's clear that people have a better handle on revenue forecasting, so things are looking up in the sense that they're not getting worse,'' he said. "But there are still the long-term problems that grow out of public policy.''

Getting a handle on runaway health-care spending and other high-cost budget items, which are often mandatory, "takes fundamental change,'' Mr. Snell added.

Vol. 13, Issue 06

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