Report: 29 States and D.C. See Modest Revenue Surpluses

WASHINGTON — For the first time since before the recession, 29 states and the District of Columbia expect their fiscal year revenues to show modest surpluses, according to a new report.

The National Conference of State Legislatures released its “State Budget Update: Spring 2012” report on Thursday, finding that revenue performance in states during fiscal 2012 remains positive and expenditures in most states are stable.

Collectively the surpluses for the 29 states and the District of Columbia amount to $9.1 billion.

Four states — Alaska, Indiana, Montana and Wyoming — are projecting unobligated balances greater than 10% of their general fund balances. High oil prices have helped boost Alaska’s projected surplus. Indiana’s surplus is partially due to a one-time transfer of funds in a holding account for corporate e-checks, which increased the surplus and triggered a taxpayer refund and a transfer to the pension fund, the report said.

Nearly all of the states with surpluses 21 and the District of Columbia anticipate using any excess funds to rebuild their rainy-day funds.

Two states — Arizona and Indiana — plan to use a portion of projected resources for debt reduction. In Indiana, revenues are being directed toward state employee pension funds.

Revenue performance through the first eight months of fiscal year 2012, which began on July 1, has been a key factor in the improved condition of state finances.

“Revenue collections have met or exceeded expectations in most states,” the report said, adding that in some cases revenues have returned to pre-recession levels. State lawmakers have closed more than $500 billion in budget gaps over the previous four fiscal years.

For the first time in four years, most lawmakers did not spend the beginning of their legislative sessions addressing budget holes, the report found. Only nine states developed budget shortfalls this year, totaling $6.8 billion. Five states have already closed all or a portion of their budget gaps. New York resolved its deficit through a variety of spending restraints.

Despite state finances showing signs of recovery, economic uncertainty remains and state officials are “cautiously optimistic” about the overall strength of economic growth stemming from concerns over high unemployment, potential federal spending cuts to state programs and Europe’s stagnant economy.

“Even though the economic outlook in the states is improving, tax collections across all categories remain uneven,” said William Pound, executive director of NCSL. “And that’s one reason state lawmakers are still uneasy.”

While budget gaps are declining, 16 states and the District of Columbia still have projected shortfalls totaling $16.2 billion for fiscal 2013, which for most states begins on July 1. The majority of the budget shortfalls for 2013 are concentrated in handful of states including California with a $5 billion deficit, New York with a $3.5 billion hole and Texas with a $2.3 billion gap.

For most states 2008 marked the peak year for revenue collections. “One-third of states expect a return to peak during the current fiscal year, though many others do not expect a return for at least three years or longer,” the report said.

Michigan, which was hit hard in the recession due to a steep decline in manufacturing jobs, doesn’t expect to return to peak revenue levels until 2018. California expects to see it return in 2017. North Dakota is the only state where tax collections never fell on a year-over-year basis, the report found.

Many states are over-budget this year due to Medicaid and other health care programs, but it’s still an improvement compared to the same time last year when 20 states spent more than expected on health care.

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