States Have Recovered from Budget Crisis, Report Says

Published February 1, 2006

The outlook for state budgets is the best in five years, according to a report of the National Conference of State Legislatures (NCSL), a bipartisan organization serving state legislators and staff.

“States have largely recovered from the budget crises that tied legislators’ hands for nearly five years,” NCSL fiscal analyst Arturo Perez said in the report. “Budget conditions continue to improve, showing strong signs of recovery in nearly every state. Buoyed by robust revenue performance, states are collecting more revenue than they projected for nearly every major tax. In some cases, collections are significantly above forecasts. But spending pressures still loom as lawmakers gear up for 2006 sessions.”

NCSL’s State Budget Update: November 2005 collected information from legislative fiscal directors in November 2005 and was released in December. That information shows virtually all state revenue sources performed well during the first quarter of Fiscal Year 2006, as “[documented] collections were above forecasted levels in 42 of the 49 states.” Documented collections were on target in six other states and below in only one (Rhode Island).

Optimistic, Stable Forecasts

“Twenty-two states have optimistic forecasts and 26 have stable outlooks,” the report says. “At the low point in states’ economies in 2002, 29 states were concerned about revenue performance and nine were pessimistic.”

Since FY 2001, according to the report, “state legislators have closed an aggregate $263.8 billion gap.” Still, new spending pressures are expected to come from rising new costs in areas such as health care, education, and energy assistance.

“Energy costs and home heating assistance programs are already exceeding budgeted amounts in six states, and as many as 17 expect to consider or make supplemental appropriations for those purposes in their 2006 sessions,” notes the report.

Big Issues Remain

“It’s a list of issues states will be debating in 2006,” said Nicole Casal Moore, Denver office public affairs manager for NCSL. The NCSL report puts the following issues at the top of state lists.

  • Medicaid–the fastest growing component of most states’ budgets–is the biggest issue, with 23 states naming it one of their top three concerns.
  • Education spending is another concern, with 15 states putting it high on their lists.
  • Taxes will top discussions in 14 states, with seven ready to explore property tax relief or reform.
  • Tax and expenditure limits will come up in six states.
  • Ten states will consider funding for transportation and other infrastructure projects.
  • Corrections issues are high on the agenda in five states, and hurricane recovery in two.

Services Expected to Increase

“Every issue is really a fiscal issue,” said NCSL Executive Director Bill Pound. “That’s why when state economies suffer, state services follow suit. States have climbed out of their budget deficits, and now they’re working on the service deficits.”

John W. Skorburg ([email protected]) is a visiting lecturer in economics at the University of Illinois, Chicago and associate editor of Budget and Tax News.

For more information …

State Budget Update: November 2005 is available for purchase in the NCSL online book store, The report covers the revenue and expenditure situation for the first four months of fiscal year 2006 for most states, including information on revenue performance, spending overruns, and the top fiscal issues anticipated for 2006 legislative sessions.