While most states are expected to remain fiscally strong this year, they will have more modest growth and some budgetary shortfalls next year when they will have to take the housing market meltdown and reduced tax collections into account, a new report says. The Fiscal Survey of States, a biannual report released jointly by the National Governors Association and the National Association of State Budget Officers yesterday, compiles fiscal data from fiscal 2006 and 2007 along with appropriations for fiscal 2008 to determine trends among state budgets. For all but four states, the fiscal year begins July 1.Budgets are relatively healthy this year, according to the report. Only one state, Wisconsin, was forced to make a mid-year budget cut, as many states used rainy-day funds, carry-over balances, or took other measures to address budgetary gaps.This is a better picture than in 2002 and 2003, when states were struggling financially and 37 required midyear budget cuts in each of those years.Even though most states have managed to make their 2007 budgets work, 2008 could prove more difficult, as states are seeing the first decrease in their aggregate balances in three years. The total year-end balance for states will fall to $47 billion from $62.7 billion in 2007, the lowest since 2005. However, balances will account for a smaller percentage of expenditures at 6.9% in 2008 when compared to the 9.6% projection for this year.State spending is estimated to be well above average for the current fiscal year, with levels expected to grow by 9.3% , above the 30-year average of 6.4%.Total spending nationwide by states from all sources, including bonds, total $1.46 trillion. General fund spending accounts for roughly half of that amount.Medicaid accounts for the largest chunk of spending this year at 21.5%, while elementary and secondary education pull in 21.4% of state dollars.Spending for the health care program is increasing 7.3% this year, compared to only 1.7% in fiscal 2006. The large increase is attributed mainly to changes in the financing of prescription drug benefits for those who are eligible for both Medicaid and Medicare.But fiscal 2008 appropriations are indicating the states will largely rein in their spending habits, with a growth of only 4.7% expected, roughly half of the previous year and below the 30-year average.In addition, the survey says governments will not provide as many tax cuts in fiscal 2008. States have decreased net taxes and fees by a total of $2.1 billion this year, compared to only $115.5 million projected to be cut in 2008.States may have been able to offer more in tax cuts this year because most of their revenue collections were higher than expected. All told, 38 states reported revenue exceeding expectations, with four receiving anticipated revenue, and only four finding revenue falling below expectations.Specific states currently dealing with budgetary gaps include California, which is searching for a solution to a projected $9.8 billion deficit for its fiscal year starting in 2008, and Florida, which is currently facing a shortfall of $2.5 billion during the same period. Maine, Michigan, New Hampshire, Oklahoma, Kentucky, and Virginia will also need to modify their budgets to balance their books, according to the report.

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