States Face New Year in Good Financial Shape

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Short-term economic forecasts could help state lawmakers deliver on their high-priority agenda items, including reducing class sizes, improving teacher quality, and creating college-scholarship programs.

But as many legislative sessions begin this month, lawmakers will also try to balance such plans with tax cuts and take account of growing concern that the robust economies that states have been enjoying cannot last forever.

"We think states will be worried, but they are in good shape going into fiscal 2000, which is the budget they will address this year," said Donald J. Boyd, the director of the Center for the Study of the States at the Rockefeller Institute of Government in Albany, N.Y.

For now, however, most lawmakers don't have to panic.

Twenty-four states and the District of Columbia anticipate higher-than-projected revenues in the current fiscal year, according to a report put out this month by the National Conference of State Legislatures, based in Denver.

Meanwhile, 23 states expect their revenue predictions to be on target, while only Alaska, Nevada, and Tennessee anticipate less-than-projected revenues, it adds.

Arturo Perez, a fiscal analyst for the NCSL, said that states have stockpiled their highest level of financial reserves in almost 20 years.

"Governors and lawmakers will have the opportunity to choose among various priorities and, in some cases, they can do both," he added. "It's a situation they don't often have."

Choosing Priorities

For example, revenue is flowing into Minnesota at 10 percent higher than the budgeted amount for fiscal 1999, thanks to excess tax revenues and proceeds from the settlement of a lawsuit against the tobacco industry.

The state's anticipated surplus for fiscal 1999, which is now $953 billion, could help newly inaugurated Gov. Jesse Ventura of the Reform Party deliver on his campaign promise to cut class sizes, as well as taxes.

"Tax cuts are the big discussion right now. Tax cuts of all sorts," said Bill Marx, the chief fiscal analyst for the Minnesota House. "K-12 education is the second most talked about."

Several reasons explain the good health of most state economies. For one, states have been planning prudently in recent years, despite booming local economies.

In addition to beefing up their reserves, the states have also moderated their spending, according to another report last month, by the National Governors' Association and the National Association of State Budget Officers.

State general-fund spending will rise 6.3 percent in this fiscal year, just below the 20-year average annual increase of 6.5 percent, the report found.

The Long Term

In addition, states built into their 1999 budgets an anticipated $7 billion reduction in their revenues because of recently enacted tax cuts--the fifth consecutive year that states have cut taxes.

"This survey show that states are cautious and conservative in both spending policies and tax reductions and remain focused on the long-range implications of their fiscal decisions," said Gloria Trimmer, the executive director of the state budget officers' group.

Still, state legislatures are expected to tackle several school issues this year.

In a separate report this month, the NCSL is forecasting that reduced class sizes and teacher recruitment and preparation will top the five education issues expected to be in the state spotlight in 1999.

"Last year, lawmakers passed programs to build classrooms," said Toni Jennings, the Republican who is president of the Florida Senate. "This session, they will work on legislation that grants a first-class education inside those classrooms."

Prompted by a spate of school shootings in the 1997-98 school year, 36 states considered school safety bills in their 1998 sessions. According to the NCSL report, the issue will remain popular this year.

School choice options, such as tuition tax credits for education costs, and vouchers that cover private school tuition, are also expected to be prominent.

Finally, the NCSL forecast predicts many states will follow the lead of Georgia and its HOPE scholarships by creating college scholarships for high school students who meet specific requirements.

Cautious legislatures, however, may be reluctant to support bills that commit long-term funding because of concerns that state economies could falter.

The Rockefeller Institute's Mr. Boyd pointed out that state budgets have benefited from the unusually strong mix of a bustling economy, reduced welfare caseloads, and booming tax revenues.

"It is quite frankly an unsustainable situation," he said. "When will it end? That is the question everyone is asking."

Vol. 18, Issue 18, Pages 16-18

Published in Print: January 13, 1999, as States Face New Year in Good Financial Shape
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