Aug 7 (Reuters) – Their revenues are improving and their
budget shortfalls are disappearing, but U.S. states face both
domestic and international economic threats that could cut short
their nascent recoveries, according to a report released on
Tuesday.
“While there are signs of improvement, the turnaround has
been slow and uneven across the nation,” the National Conference
of State Legislatures said in a budget update. “Moreover, the
newfound flexibility that lawmakers expect from improving
revenues may be hobbled by mounting budget pressures.”
The European debt crisis, still-high jobless rates in many
U.S. states, funding demands from healthcare reform, and the
U.S. deficit are all some of the “considerable challenges”
confronting states, the study found.
“Fortunately, state budgets today are better positioned to
handle these challenges,” the bipartisan NCSL said. “As reported
by legislative fiscal directors, year-end balances are rising,
with more states shoring up their rainy day funds.”
The financial crisis, housing bust and 2007-09 recession
caused revenue in many states to collapse just as demand for
services from the newly homeless and jobless workers spiked.
States cut spending, raised taxes, raided reserves and turned to
the federal government for help in the hopes of keeping their
budgets balanced.
The situation is now turning around. Only California and the
state of Washington currently are projecting deficits for fiscal
2012, according to NCSL. At the same time, resource-rich states
like Alaska, Wyoming and North Dakota expect big balances for
fiscal 2012, which ended on June 30 for most states.
For fiscal 2013, none of the states are projecting deficits,
with 10 states and Washington, D.C., eyeing balances equal to 10
percent or more of general fund spending, the NCSL reported.
However, year-end balances of just 0.1 percent to 4.9 percent
are projected in nearly a quarter of the states.
Many states consider the surpluses and revenue gains small
respites – instead of muscular recoveries – from their budget
crises.
While fiscal 2012 general fund revenue increased by 2.9
percent and spending rose by 3.1 percent over fiscal 2011
levels, “the robust return of state revenue collections that
typified previous recoveries remains elusive,” according to the
NCSL.
States’ fiscal 2013 revenue is expected to climb by only 3.7
percent, with spending rising by 2.4 percent over fiscal 2012
levels.
The slow recovery is apparent in federal data, too. In 2011,
U.S. real gross domestic product by state grew 1.5 percent,
compared with 3.1 percent in 2010, according to the U.S.
Commerce Department.
The improvements vary from state to state.
Total state revenue has now increased for nine straight
quarters. But in 2012’s first quarter, 12 states reported
declines in total tax revenue, while another 12 reported
double-digit increases, the Rockefeller Institute of Government
reported last week.
The slowness and unevenness has put many state budgets into
uncertainty. Debt problems in Europe that could roil markets
pose a large threat to many states, especially those that rely
heavily on income tax collections.
The U.S. Congress has scheduled cuts of up to $1.2 trillion
affecting states as part of last summer’s deficit deal, while it
is seeking savings by pulling back other federal grants. States
with a heavy military presence are concerned the defense
spending cuts that could lead to lay-offs.
Meanwhile, the healthcare reform law passed in 2009 is now
coming on-line, and no one is certain if states can handle the
costs of creating insurance exchanges or expanding eligibility
for Medicaid, the health insurance for the poor.
Still, even with a hodge-podge of economic threats,
legislative fiscal directors in 32 states have a stable economic
outlook, while 11 were concerned and six were optimistic,
according to the legislators’ group.
“The prevailing economic outlook is one of continued growth
but at a slow to moderate pace in most states,” the NCSL
reported.
