Revenues grow, but state budgets "remain vulnerable"

CHICAGO Tue Aug 7, 2012 11:27am EDT

Related Topics

CHICAGO (Reuters) - Revenues are improving and budget shortfalls are disappearing, but states face both domestic and international economic threats that could cut short their nascent recoveries, according to a report released on Tuesday.

"While there are signs of improvement, the turnaround has been slow and uneven across the nation," the National Conference of State Legislatures said in a budget update. "Moreover, the newfound flexibility that lawmakers expect from improving revenues may be hobbled by mounting budget pressures."

The European debt crisis, still-high jobless rates in many U.S. states, funding demands from healthcare reform, and the deficit are all some of the "considerable challenges" confronting states, according to the study, which was released as part of NCSL's legislative summit in Chicago.

"Fortunately, state budgets today are better positioned to handle these challenges," the bipartisan NCSL said. "As reported by legislative fiscal directors, year-end balances are rising, with more states shoring up their rainy day funds."

Even though states' revenues have grown over the last several years, they "have not rebounded in any significant fashion," Arturo Perez, the group's fiscal affairs program director, said at the summit. Ultimately, "state budgets do remain vulnerable."

The financial crisis, housing bust and 2007-09 recession caused revenue in many states to collapse just as demand for services from the newly homeless and jobless workers spiked. States cut spending, raised taxes, raided reserves and turned to the federal government for help in the hopes of keeping their budgets balanced.

The situation is now turning around. Only California and the state of Washington currently are projecting deficits for fiscal 2012, according to NCSL. At the same time, resource-rich states like Alaska, Wyoming and North Dakota expect big balances for fiscal 2012, which ended on June 30 for most states.

For fiscal 2013, none of the states are projecting deficits, with 10 states and Washington, D.C., eyeing balances equal to 10 percent or more of general fund spending, the NCSL reported. However, year-end balances of just 0.1 percent to 4.9 percent are projected in nearly a quarter of the states.

Many states consider the surpluses and revenue gains small respites - instead of muscular recoveries - from their budget crises.

While fiscal 2012 general fund revenue increased by 2.9 percent and spending rose by 3.1 percent over fiscal 2011 levels, "the robust return of state revenue collections that typified previous recoveries remains elusive," according to the NCSL.

States' fiscal 2013 revenue is expected to climb by only 3.7 percent, with spending rising by 2.4 percent over fiscal 2012 levels.

The slow recovery is apparent in federal data, too. In 2011, U.S. real gross domestic product by state grew 1.5 percent, compared with 3.1 percent in 2010, according to the U.S. Commerce Department.

The improvements vary from state to state.

Total state revenue has now increased for nine straight quarters. But in 2012's first quarter, 12 states reported declines in total tax revenue, while another 12 reported double-digit increases, the Rockefeller Institute of Government reported last week.

The slow and uneven progress translates into uncertainty for state budgets. Debt problems in Europe that could roil financial markets pose a large threat to many states, especially those that rely heavily on income tax collections.

The Congress has scheduled cuts of up to $1.2 trillion affecting states as part of last summer's deficit deal, while it is seeking savings by pulling back other federal grants. States with a heavy military presence are concerned the defense spending cuts could lead to lay-offs.

Meanwhile, the healthcare reform law passed in 2009 is now coming on-line, and no one is certain if states can handle the costs of creating insurance exchanges or expanding eligibility for Medicaid, the health insurance for the poor.

Still, even with a hodge-podge of economic threats, legislative fiscal directors in 32 states have a stable economic outlook, while 11 were concerned and six were optimistic, according to the legislators' group.

"The prevailing economic outlook is one of continued growth but at a slow to moderate pace in most states," the NCSL reported.

(Reporting by Lisa Lambert and Karen Pierog; Editing by Leslie Adler)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (4)
morbas wrote:
Hockey Puck Profit Projections for State profits in 2013?
These are the 2011 budget facts….
2011 Cost of USA governments relative to Total Income $12,981,740,848,000[1]
Federal Budget[2]: $ 2,314,000,000,000 17.83% of Income.
State Budget[2] : $3,007,320,000,000 23.17% of Income.
City-County Municipality[3] :$37,945,809,589 16.4% of Income.
Total USA Budget: 57.4% of Income
Tax revenues must add up to 57% of all the incomes, and the rich have a lower rate than the poor. Over the past 60years, the tax rate has decreased from 91% down to the present 35% (15% for the wealthy quintile). Stagnation will continue as long as the Municipality and State revenue base is disproportionately burdened on the lower 80% income groups. This will be sustained under the SCOTUS blessings, as representative congressional protections have been circumnavigated. And also over the course of 50 years the government has become increasingly partisan, with the filibuster rules used to stop all congressional legislation (regardless of popularity). With razor thin election margins, the independent voters need to organize voting blocks; we can solve this by November.
Fair Taxation Mandate,
We could eliminate all other forms of taxation (sales, business, etc.)and balance the budget with a graduated nationalized tax starting at $40,000 (2x poverty) at 0% then graduating to 90% at the highest income levels set by the Federal Reserve. Funds shared in 3rds between Federal, State and Municipalities. State and Municipalities proportioned by voter turn out. This 1) balances Federal, State and Municipality budgets, 2) stabilizes monetary value, 3) addresses class fairness for sustenance income level(s), 4) balances economic powers between Federal, state and municipalities, and 5) encourages voter rights.

Aug 07, 2012 12:31pm EDT  --  Report as abuse
morbas wrote:
Hockey Puck Profit Projections for State profits in 2013?
These are the 2011 budget facts….
2011 Cost of USA governments relative to Total Income $12,981,740,848,000[1]
Federal Budget[2]: $ 2,314,000,000,000 17.83% of Income.
State Budget[2] : $3,007,320,000,000 23.17% of Income.
City-County Municipality[3] :$37,945,809,589 16.4% of Income.
Total USA Budget: 57.4% of Income
Tax revenues must add up to 57% of all the incomes, and the rich have a lower rate than the poor. Over the past 60years, the tax rate has decreased from 91% down to the present 35% (15% for the wealthy quintile). Stagnation will continue as long as the Municipality and State revenue base is disproportionately burdened on the lower 80% income groups. This will be sustained under the SCOTUS blessings, as representative congressional protections have been circumnavigated. And also over the course of 50 years the government has become increasingly partisan, with the filibuster rules used to stop all congressional legislation (regardless of popularity). With razor thin election margins, the independent voters need to organize voting blocks; we can solve this by November.
Fair Taxation Mandate,
We could eliminate all other forms of taxation (sales, business, etc.)and balance the budget with a graduated nationalized tax starting at $40,000 (2x poverty) at 0% then graduating to 90% at the highest income levels set by the Federal Reserve. Funds shared in 3rds between Federal, State and Municipalities. State and Municipalities proportioned by voter turn out. This 1) balances Federal, State and Municipality budgets, 2) stabilizes monetary value, 3) addresses class fairness for sustenance income level(s), 4) balances economic powers between Federal, state and municipalities, and 5) encourages voter rights.

Aug 07, 2012 12:31pm EDT  --  Report as abuse
morbas wrote:
Hockey Stick Profit Projections for State profits in 2013?
These are the 2011 budget facts….
2011 Cost of USA governments relative to Total Income $12,981,740,848,000[1]
Federal Budget[2]: $ 2,314,000,000,000 17.83% of Income.
State Budget[2] : $3,007,320,000,000 23.17% of Income.
City-County Municipality[3] :$37,945,809,589 16.4% of Income.
Total USA Budget: 57.4% of Income
Tax revenues must add up to 57% of all the incomes, and the rich have a lower rate than the poor. Over the past 60years, the tax rate has decreased from 91% down to the present 35% (15% for the wealthy quintile). Stagnation will continue as long as the Municipality and State revenue base is disproportionately burdened on the lower 80% income groups. This will be sustained under the SCOTUS blessings, as representative congressional protections have been circumnavigated. And also over the course of 50 years the government has become increasingly partisan, with the filibuster rules used to stop all congressional legislation (regardless of popularity). With razor thin election margins, the independent voters need to organize voting blocks; we can solve this by November.
Fair Taxation Mandate,
We could eliminate all other forms of taxation (sales, business, etc.)and balance the budget with a graduated nationalized tax starting at $40,000 (2x poverty) at 0% then graduating to 90% at the highest income levels set by the Federal Reserve. Funds shared in 3rds between Federal, State and Municipalities. State and Municipalities proportioned by voter turn out. This 1) balances Federal, State and Municipality budgets, 2) stabilizes monetary value, 3) addresses class fairness for sustenance income level(s), 4) balances economic powers between Federal, state and municipalities, and 5) encourages voter rights.

Aug 07, 2012 12:39pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

Full focus

Recommended Newsletters

Reuters U.S. Top News
A quick-fix on the day's news published with Reuters videos and award-winning news photography and delivered at your choice of one of four times during the day.
Reuters Deals Today
The latest Reuters articles on M&A, IPOs, private equity, hedge funds and regulatory updates delivered to your inbox each day.
Reuters Technology Report
Your daily briefing on the latest tech developments from around the world from Reuters expert tech correspondents.