State budgets show initial recovery signs

State budgets show initial recovery signs

After three straight years of fiscal blues, state budgets may begin to improve slightly in the coming months along with the national economy, said a survey released this week by the National Governors Association and National Association of State Budget Officers.

The biannual fiscal survey found states pared back spending significantly in fiscal 2003 and 2004 to balance budgets. Revenue collections at the beginning of fiscal 2004 were sluggish but recently have begun to improve in some states.

'Spending growth has been virtually flat for the last three fiscal years,' said Scott Pattison, NASBO's executive director. The situation left states with no choice but to make significant budget cuts, he said.

'Positive economic news will hopefully translate into positive revenue growth, but states can expect tough economic times for the rest of the fiscal year, and perhaps into fiscal 2005,' Pattison said.

Based on fiscal 2004 appropriations, expenditures are expected to rise by only 0.2 percent over the previous year, according to the report.

Among the findings:

  • Thirteen states enacted negative-growth budgets in fiscal 2004.

  • Twenty-one states had lower general fund spending in fiscal 2003 compared with the previous year.

  • Forty states reduced fiscal 2003 budgets by $11.8 billion after enactment, two more states than in the previous year.


'We may have bottomed out, but we're not out of the woods yet,' said Ray Scheppach, NGA's executive director. 'States continue to struggle with short-term cyclical and long-term structural problems.'

The structural problems are a direct result of obsolete tax systems, he said. Some states, such as Alabama and Virginia, are attempting to overhaul their tax systems.

The two Washington associations found states continuing to struggle to balance their budgets amid soaring health care costs and stagnant revenue. To combat budget pressure, they have ratcheted down expenses both across the board and by targeted reductions to programs.

Although several states have exempted K-12 education from cuts, many of the most politically sensitive areas have not been spared the budget ax, according to the report. Forty states made either across-the-board or selective program cuts in fiscal 2003. The cuts totaled $11.8 billion, second only to fiscal 2002, when 38 states cut nearly $13.7 billion.

Thirteen states, including Iowa, Virginia and Washington, have launched major reorganizations to balance their budgets and drive savings, Pattison said.

The report is based on data reported by the states about their general fund budgets. State fiscal years run from July 1 to June 30. NASBO conducted this survey between July and November.

About the Author

William Welsh is a freelance writer covering IT and defense technology.

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