State budgets improve, spending picks up: survey

WASHINGTON (Reuters) – U.S. state budgets improved markedly
in fiscal 2005 but revenue growth is expected to slow in 2006
while spending pressures from Medicaid, pensions and deferred
infrastructure investment keep growing, according to a new
survey released on Tuesday.

Fiscal 2005 revenues exceeded expectations in 45 states and
were on target in five states, with the total 4.2 percent
higher than estimated, the National Governors Association and
the National Association of State Budget Officers said in their
December 2005 Fiscal Survey of the States.

Overall, fiscal 2005 revenues were 7.5 percent higher than
the year before, reflecting an accelerating and broad-based
economic recovery, but revenues for fiscal 2006, which started
July 1 for 46 states, are expected to increase only 3.3 percent
over 2005.

State general fund spending grew by 6.5 percent to $557
billion in fiscal 2005 and is budgeted to grow by 6.3 percent
in fiscal 2006.

“Every new dollar coming in is already spent and then
some,” said Scott Pattison, director of the National
Association of State Budget Officers. “I liken it to a guy who
gets a raise and then gets home to see the bills just keep
piling up.”

However, states benefiting from higher revenues in fiscal
2005 have not fully restored all of their spending cuts during
the lean years of fiscal 2002-2004, National Governors
Association executive director Raymond Scheppach said. States
have been largely prudent in their appropriations, leading to
bigger surpluses at the end of fiscal 2005.

State fiscal balances, or surpluses, at the end of 2005
totaled $38.5 billion or 6.9 percent of fiscal 2005
expenditures. This is up from $26.7 billion or 5.1 percent of
expenditures at the end of fiscal 2004, but fiscal 2006
year-end balances are expected to drop back down to $27.5
billion or 4.6 percent of expenditures.

By comparison, year-end fiscal 2000 balances were $48.8
billion, or 10.4 percent of expenditures.

Medicaid, the state-federal health care program for the
poor that now covers more than 53 million Americans, continues
to eat up a bigger portion of state budgets, outpacing revenue
growth.

The survey showed spending growth of 7.5 percent in fiscal
2005, when 26 states exceeded appropriated Medicaid budgets.
States have appropriated a 5.5 percent increase in Medicaid
expenditures in their fiscal 2006 budgets.

Six states — Indiana, Massachusetts, Michigan, New Jersey,
New York and Ohio — cut their fiscal 2005 spending by a
combined $1.2 billion after passing their fiscal 2005 budgets.

Only three states have legislated budget cuts for fiscal
2006: Michigan cut appropriations by $434 million, Indiana by
$131 million and Massachusetts by $36.8 million.

In fiscal 2004, 18 states made budget cuts totaling $4.8
billion, while in fiscal 2002 and 2003, 37 states were forced
to make mid-year budget cuts totaling $15 billion and $11.8
billion, respectively.