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U.S. states end year with higher balances–survey

August 17, 2005

WASHINGTON (Reuters) – Robust tax collections left U.S.
states with healthy year-end balances, but these are expected
to dwindle in the new fiscal year started July 1 as spending
growth from Medicaid and other programs outstrips revenue
gains, a new report showed on Wednesday.

In its fiscal 2005 year-end state budget survey, the
National Conference of State Legislatures said none of the 46
states surveyed ended the year with a deficit, though Arkansas
had expected to end with a zero balance.

The states estimated their aggregate year-end balance at
$35.7 billion, up 8 percent from the $33.1 billion at the end
of fiscal 2004.

The total represented 7 percent of fiscal 2005 general fund
spending, versus 6.9 percent at the end of fiscal 2004. At the
start of fiscal 2005, legislative budget directors estimated
they would end the year with balances equal to 3.6 percent of
spending.

For fiscal 2006, the 46 states surveyed project year-end
balances of 4.7 percent, reflecting spending needs that are
expected to outpace conservative revenue growth projections.

States not included in the survey were Alabama, Michigan,
North Carolina and Oregon.

In a previous NCSL survey released in April, Michigan had
reported a $465 million budget gap in its general and school
aid funds. However, the state separately reported on Wednesday
that fiscal 2005 revenue estimates had increased by $69 million
above May forecasts.

“Year end balances are widely considered to be one of the
best indicators of state fiscal health, so figures at the end
of FY 2004 and FY 2005 demonstrate an important turnaround in
the condition of state budgets,” the NCSL said in a statement.

But states face intense budgetary pressure from Medicaid,
the state-federal health care program for the poor which is
consuming an ever-growing share of state spending. Unfunded
pension liabilities and cuts in federal subsidies also could
derail balanced state budgets in the coming year, NCSL said.

SLOWER REVENUE GROWTH

State revenues in fiscal 2005 were 6.8 percent above fiscal
2004 levels, NCSL said. Revenues grew more than 5 percent in 29
states and were up more than 10 percent in eight states.

Alaska reported the largest increase, 31 percent, as oil
tax revenues jumped on higher crude prices. Virginia revenue
was up 10.3 percent and Nevada was up 9.4 percent in part due
to revenues generated from new tax legislation last year.

For fiscal 2006, state revenues are projected to grow just
2.7 percent. Six states project revenue growth above 5 percent,
with only one predicting growth above 10 percent.

Eight states are predicting a decline in revenue for fiscal
2006 — Alaska, Idaho, Maine, New Hampshire, New Jersey,
Nevada, North Dakota and West Virginia — because one-time
revenue gains are not expected to recur.

General fund appropriations in fiscal 2006 by the 46 states
are expected to rise 5.7 percent versus 6.8 percent growth in
fiscal 2005. Twenty-three states expect fiscal 2006 spending to
grow at least 5 percent and 4 states expect at least 10 percent
growth.

Of the 43 states reporting on Medicaid spending, general
fund support is budgeted to grow 7.2 percent, or 8.1 percent
when total state spending is considered. These same states saw
general fund Medicaid spending rise 14.8 percent in fiscal 2005
as health care costs grew and utilization of the program
expanded.

The survey found 21 states budgeting fiscal 2006 Medicaid
appropriations growth of 10 percent or more, with Louisiana up
32.7 percent and Oklahoma up 21.6 percent. Both states are
replacing lost Medicaid revenues from federal and other sources
with state general fund revenues.




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