States Post Billions in Surpluses
By Pamela M. Prah,
Most states are finding extra money in their coffers just as they craft budgets for the coming year. Forty-one states figure to end this fiscal year with a total of $31 billion more than planned.
Ten states are in the enviable position of unexpectedly having an extra $1 billion or more to help balance budgets, cut taxes or splurge on new projects, according to new data to be released April 19 by the National Conference of State Legislatures at its spring meeting in Washington, D.C.
Texas is living up to its motto that everything indeed is bigger in the Lone Star state, even surpluses. Texas is projecting a jaw-dropping $7 billion in money it hadn’t expected. At the bottom of the budget heap, Michigan is expecting to run $360 million short — pared back from $900 million — but still necessitating a scramble to balance its budget by Oct. 1.
Overall, states are a bit worried because sales-tax collections are slipping. “We’re concerned because sales-tax performance was a leading indicator of fiscal problems the last time we went into an economic downturn,” Warren Deschenaux, director of Maryland’s Office of Policy Analysis, said in an NCSL statement. Sales taxes account for about one-third of state budget revenue for the 45 states that charge a tax on purchases.
Last year at this time, states were reporting robust tax collections across the board — for corporate, income and sales, said Arturo Perez, a NCSL fiscal expert. This year 14 states indicate sales tax collections are below their targets.
State lawmakers last year enjoyed their best budget climate in six years, splurging on new projects ranging from a baseball stadium for the Minnesota Twins to a spaceport in New Mexico.
NCSL’s report comes as most state legislatures are working on budgets for the next fiscal year, which for all but four states begins July 1. Almost a dozen states already have wrapped up this year’s legislative sessions: Idaho, Kentucky, Maryland, New Mexico, South Dakota, Utah, Virginia, West Virginia and Wyoming.
All states, except Vermont, require a balanced budget.
Most of Texas’ unexpected revenue came from higher-than-expected collections of sales taxes and oil-production taxes. Texas, which does not have an income tax, gets about half of its states revenue from the sales tax. Its nearly $7 billion surplus will go toward property-tax relief and other budget items for the coming fiscal year, which begins Sept. 1.
But besides upticks in tax collections, some states are showing surpluses because of conservative forecasting when they drew up their budgets.
Florida finds itself with a $2.7 billion surplus and California $1.9 billion, even though both states earlier this year had been looking at $1 billion shortfalls for the coming fiscal year. A laska plans to use its unexpected $1 billion for K-12 education, while Minnesota and New Jersey plan to cut property taxes with their $1 billion. Even Louisiana, still recovering from Hurricane Katrina, has some budget breathing room. It plans to use $771 million for Medicaid, the state-federal insurance program for the poor. Oregon and Washington, which both have two-year budget cycles, also have more than $1 billion in unexpected funds.
Supplanting health care and Medicaid costs as a perennial budget-buster, prisons are a financial problem area for several states this year. Arizona, Connecticut, Maryland, Montana, New Mexico, Oklahoma, Rhode Island and Vermont are facing shortfalls in their prison budgets.
At least nine states plan to stow portions of their unexpected funds in rainy day or other savings accounts, and at least 11 plan to funnel extra dollars to higher education. Transportation projects also are popular. Virginia tapped about one-third of its unexpected revenues ($161 million) for one-time transportation funding.
At least a dozen states are considering tax cuts, NCSL said. Alabama is looking to cut sales and income taxes. New Mexico already has passed an earned income tax credit and North Carolina is considering one. Utah reduced business taxes. Seven states are approaching the end of this year’s fiscal year in the black but with no extra cash: Delaware, Illinois, Kansas, Massachusetts, Rhode Island, Tennessee and Wisconsin. Maine’s Legislature must address a $34 million budget shortfall, after an emergency spending bill ate into a projected $86.4 million balance.