States' rising bills may outpace revenue: survey

Reuters News
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Posted: Jun 02, 2011 1:33 PM

By Karen Pierog

CHICAGO (Reuters) - States are projecting slightly higher revenue collections in fiscal 2012, but the slow pace of the economic recovery is leaving many with deficits and mounting spending pressure for health care and education, according to a fiscal survey released on Thursday.

"We don't expect revenue to keep pace with bills coming in," said Scott Pattison, executive director of the National Association of State Budget Officers, which conducted the biannual survey with the National Governors Association.

Fiscal 2012 budgets proposed by governors included $655.6 billion of general fund tax revenue, a 2.1 percent increase over fiscal 2011. Even with a 5.9 percent revenue increase over fiscal 2010 levels in fiscal 2011, which ends on June 30 for most states, fiscal 2012 revenue would lag fiscal 2008 collections by $24.6 billion, the survey found.

Meanwhile budget gaps, which totaled nearly $230 billion between fiscal 2009 and 2011, persist, with 33 states reporting a collective $75.1 billion deficit for fiscal 2012 and 21 projecting a $61.8 billion imbalance in fiscal 2013. The survey attributed the nagging deficits to the end of billions of dollars that flowed to states from the federal stimulus act and slow recovery in state tax revenue.

The recession, which ended in June 2009, still haunts state budgets, depressing revenue levels while increasing demand for more spending, particularly for Medicaid, the state and federally funded health care program for the poor.

The survey showed that so-called flexible spending allotted to states for Medicaid and education under the stimulus act peaked at $60.7 billion in fiscal 2010, fell to $51 billion in fiscal 2011 and will be a relatively paltry $2.8 billion in the coming fiscal year.

As a result, states will shoulder more of their already big burden for funding Medicaid in fiscal 2012, with state spending projected to increase by 18.6 percent, while federal money falls by 13 percent, according to the survey.

"Nearly all state new revenue is going to Medicaid," Pattison said.

He also said some of the pressure on states may be easing, as only 23 states during the current fiscal year were forced to cut a collective $7.8 billion in spending to keep their budgets balanced, compared to 39 states that turned to mid-fiscal year cuts of $18.3 billion in fiscal 2010 and 43 states that slashed $31.3 billion in fiscal 2009.

For fiscal 2012, the survey found that governors in some states proposed tax and fee measures to increase revenue by a collective $13.8 billion, while proposed budgets in 12 states called for net general fund revenue decreases.

State budget balances or rainy day funds, which were largely drained during the recession, are staging a comeback. Proposed budgets pegged fiscal 2012 balances at $32.6 billion or 4.9 percent of general fund expenditures, according to the survey. However, 20 states have rainy day funds that total $10 million or less, while Alaska and Texas accounted for 48.3 percent of fiscal 2011's $31.9 billion of balances.

(Reporting by Karen Pierog; Editing by James Dalgleish)