State budgets post gains in FY 2007.(News & Numbers)

A new report by the National Conference of State Legislatures (NCSL), State Budget Update. March 2007, shows that 42 states have unexpected funds to work with as they approach the end of their budgets for fiscal year (FY) 2007 and craft their budgets for FY 2008.

State fiscal officers attribute this situation to higher-than-expected revenues and stable spending needs. In FY 2007, most states took in more money than officials predicted from personal income and business taxes. Of the 41 states that levy a broad-based personal income tax, 22 reported that collections were above forecasted levels. And in 26 states, corporate income and other business taxes exceeded expectations.

But sales and use taxes did not perform as well. Of the 45 states that levy a statewide sales tax, 11 reported that collections were above forecast. Sixteen reported collections on-target or close to target. And 14 states reported collections below target.

On the other side of the ledger, spending plans have held relatively firm. Although the number of states with spending overruns has increased since NCSL's last state budget update in November, the overages appear modest in most states.

With the unexpected resources, at least a dozen states are considering tax cuts. Alabama is looking at reducing sales and income taxes. Florida, Minnesota, Montana, North Dakota, and Texas may provide property tax relief. New Mexico passed an earned income tax credit and North Carolina is considering one. Utah reduced business taxes.

Several states, including Arkansas, Vermont, and Virginia, will fund one-time projects. Some states are putting additional dollars into their FY 2007 budgets to resolve overruns or support more programs. Transportation projects and other capital expenditures are popular targets for extra revenues. Many states will reduce unfunded pension liabilities or will put money into state retiree health care.

At least nine states are stowing portions of their unexpected funds in rainy day or other savings accounts (Colorado, Connecticut, Georgia, Mississippi, Nebraska, New Hampshire, New Mexico, Oklahoma, and Oregon).

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