Fewer gaps in state budgets so far: legislatures

WASHINGTON Thu Dec 1, 2011 12:58pm EST

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WASHINGTON (Reuters) - The budgets of states are springing fewer holes this fiscal year, according to a report released by a state lawmakers group on Thursday.

Only four states have reported budget gaps so far in fiscal 2012, compared to the 15 that had deficits in the same period in fiscal 2011, the National Conference of State Legislatures said.

"In total, lawmakers have resolved an aggregate gap of more than $500 billion over four consecutive years. But the tide may be turning. Halfway into the second quarter of fiscal year 2012, new gaps are practically nonexistent," the group said.

For most states fiscal 2012 started in July. Since then, California, Missouri, New York and Washington have said their revenues cannot cover the spending demands in their budgets.

The total of the gaps is significantly smaller as well -- $4.4 billion compared to $26.7 billion in the first few months of fiscal 2011, the group said.

After the recession began in 2007, states made mid-year emergency budget changes as revenues cratered. Since all states except Vermont must balance their budgets, they hiked taxes and slashed spending. Worse yet, many reduced revenue forecasts only to see collections not meet the lower projections, which in turn forced more spending cuts.

Following suit with a report released this week by the National Governors Association and National Association of State Budget Officers, NCSL reported that budget officials are concerned national economic problems could throw states' recovery off track.

In the same light, many states are concerned the U.S. Congress plans to drastically cut federal spending, which could turn off funding spigots for states.

"The majority of states report that they expect to meet or exceed general fund revenue targets. It is worth noting, however, that the aggregate revenue growth rate for fiscal year 2012 was relatively low," NCSL said. "At the time of budget enactments, total state revenues for fiscal year 2012 were projected to increase 1.9 percent."

Still, NCSL reported that "officials in 16 states are concerned about meeting their projections," even though their revenues are growing.

Last week, California Controller John Chiang told Reuters that nationally, "things are still very sluggish."

California's weaker-than-expected revenues will likely trigger spending cuts required by a budget deal between the legislature and governor. The budget had assumed a $4 billion revenue surge that did not materialize.

Revenue slowdowns or missed forecasts could make the task of drafting budgets, which many statehouses and governors will embark on next month, particularly difficult.

Voters have shown little appetite for further tax increases, there are few places left to cut spending, and the federal government is hesitant to help.

"Other states expressed concern that a budget gap could develop before the end of the fiscal year," the legislatures group said. "In Maine, for example, a pending revenue revision based on a more pessimistic economic forecast will likely produce a new shortfall."

In a recent survey of states, the economic newsletter the Liscio Report found that slightly more than a quarter had met or exceeded forecasts for withheld collections for November, it said on Thursday. That compared to a little less than half of states in October and about two-thirds last November.

Withheld taxes, which an employer takes from an employee's paycheck and pays directly to the government, are a good barometer of revenue levels.

According to the state legislators' group "Mother Nature is responsible for the budget shortfall" in Missouri, which was devastated by a tornado this summer and is still recovering.

The remainder of fiscal 2012 will likely bring "continued improvement," but revenues "are not expected to increase as much as they did last year," NCSL said.

(Editing by James Dalgleish)

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