State budgets still struggling despite recovering economy.(News & Numbers)

Faced with stagnant revenues and persistent spending pressures, states have struggled with budget shortfalls over the past three years. According to the most recent edition of The Fiscal Survey of States by the National Association of State Budget Officers, states continue to deal with short-term cyclical and long-term structural problems, despite signs of an improving economy. States have attempted to overcome these challenges by enacting negative growth budgets, increasing taxes and fees, reorganizing programs, and drawing from their reserves. Despite these difficulties, however, there is cause for optimism--some states have begun to see their revenues rebound, and this trend is expected to continue over the next year.

The Fiscal Survey captures data on general fund spending, which in 2003 represented 46.2 percent of the $1.1 trillion in total state spending. Major findings include the following:

* Twenty-one states enacted negative growth budgets in fiscal 2003, and 40 states--two more than the previous year and the most recorded in the 23-year history of The Fiscal Survey--reduced their enacted budgets after they were passed. These reductions totaled $11.8 billion.

* Thirteen states enacted negative growth budgets in fiscal 2004, and eight have already reduced their budgets by a total of $2 billion.

* To address budget gaps in fiscal 2003, 32 states enacted across-the-board cuts, 25 drew upon rainy day funds, 16 laid off employees, 13 offered early retirement, 13 reorganized programs, and 29 used a variety of other methods.

* States met with persistent spending pressures. Medicaid spending increased by 9.3 percent in fiscal 2003, and 32 states expect a shortfall in their Medicaid budgets in 2004. Seven states increased Temporary Assistance for Needy Families cash assistance benefit levels in 2003 from 1 percent to 2 percent, while one decreased its benefit levels by 26 percent.

* In fiscal 2004, 36 states enacted net increases in taxes and fees totaling $9.6 billion, which included $2.6 billion in sales taxes, $2.3 billion in personal income taxes, and $1.8 billion in fees. Two states enacted net tax reductions totaling $31.1 million.

* In fiscal 2004, the budget actions of more than half the states are expected to affect local governments, largely through reduced aid.

* States anticipate revenues to rebound in fiscal 2004, and have enacted budgets projecting revenues to grow by 5.1 percent above 2003 estimates.

The Fiscal Survey of States is published twice annually by the National Association of State Budget Officers and the National Governors Association. The report is available in its entirety at www.nasbo.org.

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