Getting in Budget Shape: Fiscal Health of States Improves

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Most states will begin their 1994 legislative sessions in the best budget shape of the decade, as both spending and tax collections are on target or performing better than expected across much of the country, a new report indicates.

Tax collections are meeting expectations in 24 states and topping estimates in 21 more states, according to a survey by the National Conference of State Legislatures.

The report found that only Alaska, Hawaii, Kentucky, New Jersey, and Rhode Island are experiencing significant shortfalls.

The second-straight year of improving budget conditions also suggests that most of the states with cost overruns in specific programs will be able to pay for them with unexpected tax revenues.

"Since the recession of the early 1990's, states have had to contend with both sluggish revenue growth and expenditure overruns,'' the survey, which was released this month, points out. "This report shows that this double-edged problem has eased considerably.''

N.C.S.L. officials explained that the on-target budgets reflected both growth in the economy and conservative forecasts by state budget experts.

In North Carolina, for example, state officials sought to avoid any unplanned increases in health-care costs by budgeting a 20 percent rise in Medicaid spending for fiscal 1994. Similar tactics have held the number of states with Medicaid-cost overruns to just 10.

'Turn for the Better'

Of the five states still experiencing budget troubles, the situation is most difficult in Alaska, the N.C.S.L. found.

In Alaska, lower-than-anticipated oil prices have been a major factor in keeping revenues at least 15 percent below budget. State lawmakers plan to use existing budget reserves to avoid a deficit.

A decline in tourism has plagued Hawaii, while a subpar economy has caused trouble in Kentucky, New Jersey, and Rhode Island.

Eight states expressed concern in the survey that their final tax receipts could fall short of the amount budgeted, although most said they should avoid finishing the year in the red.

Meanwhile, the trend toward a growing economy will help other states regain the budget cushions they were forced to draw from in recent years. Minnesota lawmakers, for example, expect this year to restore their "rainy day'' fund to $500 million, the amount recommended by law.

"The budget struggles of recent years seem to be coming to an end for most states,'' the report concludes. "Although state officials remain cautious, most are relieved to report that state finances have taken a turn for the better.''

Vol. 13, Issue 17

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