Economic Slowdown Reflected in State Budgets

With the slowdown in the economy, there is widespread concern about the kind of painful belt-tightening which occurred in the states in the early 1990s. Because of this perception and the rapid change in so many states’ fiscal situations, the National Conference of State Legislatures (NCSL) released this week a new survey to update its January 4, 2001, State Fiscal Outlook for 2001. NCSL found that 33 states -- down from 44 reported only seven weeks earlier -- still report that revenues are on target or above forecasted levels for the current fiscal year. The likely reason for the 11-state decrease is lower than anticipated November and December revenues. Medicaid and increased funding for education are the two main expenditures pressuring states’ budgets. 



States most affected by the slowdown are located in the South and in the Great Lakes region: Alabama, Arkansas, Indiana, Kentucky, Michigan, Mississippi, North Carolina, Ohio, South Carolina, Tennessee, and Virginia. 



Most states report they will not need to cut their FY 2001 budgets to keep them in balance; however, 11 have implemented or are considering budget reductions to current year allocations. Five states already have tapped their “rainy day funds” to end the year in the black, and another six are considering the option. 



Eight states (Alaska, California, Hawaii, New Hampshire, New York, Oregon, Utah, and Wyoming) reported their spending on target and receiving higher-than-expected revenues. Some states, such as Alaska, Louisiana, Oklahoma, New Mexico, Texas, and Wyoming got a boost from higher than anticipated natural gas tax receipts. 



According to NCSL, most states expect to experience a maintenance-only budget for FY 2002 with few new initiatives and modest spending growth. Ten states, however, reported tax increases are under consideration for next year. 



For more detailed information on state FY 2001 expenditures, budget cuts, reserve funds, tax changes, and growth rates for FY 2002 budgets, review State Fiscal Outlook for 2001: February Update from NCSL at http://www.ncsl.org/programs/fiscal/upsfo2001.htm