* Revenues slowly improving
* Threats of rising costs, unemployment and federal budget
* Less than half states say revenues are back to
By Lisa Lambert
WASHINGTON, Dec 6 Most U.S. states reached a
plateau of fiscal stability in 2012 as their revenues slowly
grew, but they still face threats from escalating costs, high
unemployment and federal budget cuts.
That has given rise to a single refrain in describing
current state budgets: good, but not great.
"It's good news but not great news about where states are,"
said Kil Huh, research director at Pew Center on the States.
"The overall picture is not bad - we're moving in the right
direction - but it's certainly not great," Scott Pattison,
executive director of the National Association of State Budget
Officers, told Reuters.
In presenting findings from a recent survey of state budgets
to a group of state lawmakers on Thursday, Arturo Perez, fiscal
affairs program director at the National Conference of State
Legislatures, repeated the phrase frequently.
In the survey, to be released soon, Perez found that 27
states are meeting or exceeding projections for personal income
tax collections for fiscal 2013, which for most states began in
July. Another 28 are on target or doing better than expected for
sales and use taxes, which make up about 32 percent of state
revenues, he said.
"One word stands out, and that is stable," Perez said on
Thursday about how officers describe their budgets. "At the same
time, one other term is slow-growth...You don't see the word
robust out there."
Many state budgets are still bruised by the recession, three
years after the downturn ended. During the worst of the
recession, revenue in most states collapsed just as demand for
services from the newly homeless and jobless spiked. States cut
spending, raised taxes, raided reserves and turned to the
federal government for help.
In more than half the states, 27, the rate of revenue
recovery after the recession is slower than after the last two
downturns, Perez said. And while 19 states say their revenues
have already returned to the peaks they reached before the
recession, six say they will only achieve those highs this
fiscal year and six in fiscal 2014. Arizona projects its
revenues will finally recover in fiscal 2018.
A POSSIBLY GLOOMIER PICTURE
As 2012 draws to a close, states in total are "getting close
to 12 straight quarters of growth" in revenues, said Lucy
Dadayan, senior policy analyst for New York's Rockefeller
Institute, adding the amounts were not adjusted for inflation.
Adjusting revenue amounts for inflation paints a far
Unadjusted, total state tax revenues in fiscal 2012 were
around 1 percent higher than in fiscal 2008, the year before the
recession hit most states' budgets. Adjusted for inflation,
revenues were about 5 percent lower, she said. For most states,
fiscal 2012 ended in June.
About half of the states collected more revenues in fiscal
2012 than in their prerecession peak years, she said. That
number plummets to less than 10 states when the amounts are
adjusted for inflation.
"The greatest risk for the slow state tax revenue growth is
that some states might never fully recover from the recession
before the next downturn," she said.
NOT ENOUGH MONEY TO GO AROUND
Because all states except Vermont must end their fiscal
years with balanced budgets, many are keeping spending growth
flat, unable to undo the dramatic cuts they made at the depth of
the recession. Others are still making emergency reductions.
This week, Massachusetts Gov. Deval Patrick suggested cuts
in funds for local governments, special education and the court
systems to help close the state's $540 million budget gap. The
Boston Globe reported the state will likely collect $381 million
more in taxes this year than last, but that slow economic growth
dragged revenues below the forecasts used to draft the budget.
"States are announcing budget cuts because - even though
revenue is improving - there's not enough money to go around,"
said NASBO's Pattison.
Revenue growth, no matter how small, can give some state
leaders "the feeling that maybe we've left the worst behind,"
said Elizabeth McNichol, who closely monitors states' fiscal
conditions as a senior fellow at the Center on Budget and Policy
Priorities, and could prompt them to prematurely cut taxes.
"States are still going to have trouble coming up with the
revenue they need to maintain services," she said, noting that
total spending on education remains below its prerecession
level. "States aren't going to be able to meet the needs of
school kids and health insurance without looking at revenues
again, raising revenues."
Connecticut, for example, will end fiscal 2013 on June 30
with a projected deficit of at least $415 million, according to
Comptroller Kevin Lembo, mostly due to rising costs for
Medicaid, the health insurance program for the poor that is a
swelling cost for many states.
"When you look at some of the states where the revenues
recovered far more quickly, a lot were natural resource
states...or they made tax changes," said Pew's Huh.
Natural resources include oil, coal and natural gas, which
is enjoying a boom. States with large extraction industries such
as Texas "weathered the recession far better than other states
and they're rebounding more quickly," Huh said.
New Mexico's Legislative Finance Committee reported on
Monday it expects revenues to rise 4.7 percent in the fiscal
year starting in July from the current fiscal year, noting that
oil and gas receipts have kept its revenue forecasts "strong."
State budgets often function as mirrors of the wider U.S.
economy. With unemployment remaining high - analysts polled by
Reuters say the jobless rate likely leveled off at 7.9 percent
in November, compared to 4.7 percent at the beginning of the
recession in November 2007 - state's hopes for great fiscal
conditions will remain low.
"States rely on income taxes and people need to have jobs to
have incomes," said CBPP's McNichol. "Until the unemployment
rate returns to prerecession levels we're not going to see state
revenues return to prerecession levels."
Dadayan found personal income tax revenues in fiscal 2012
were 1.6 percent below fiscal 2008, not adjusted for inflation.
CLIFF CREATES UNCERTAINTY
When many governors and state legislatures return in January
to draft budgets for the next fiscal year, they will also have
to contend with the threat of uncertainty.
The U.S. government has scheduled automatic spending cuts
for next year. States worry they will have to pick up costs of
programs they fund cooperatively with the federal government and
cut already lean spending - the U.S. government provides
one-third of their revenues.
Mostly, though, contentious negotiations between the White
House and Congress over avoiding what has been dubbed the
"fiscal cliff," has left states in the dark, unable to
confidently estimate their revenues and obligations.
Maine must curtail spending by $35.5 million this fiscal
year, as revenues lag forecasts, wrote the state's Commissioner
Of Administrative and Financial Services H. Sawin Millett, Jr.,
to Governor Paul LePage on Monday.
"The...slowing of economic growth and the uncertainty over
what the response to the 'fiscal cliff' challenge will be have
had an effect on Maine's revenues, as evidenced by the weak
performance of most general fund revenue lines over the first
four months of the fiscal year," he wrote.
A bipartisan collection of governors recently pressed
President Barack Obama and congressional leaders for resolution
to the fiscal cliff debate.
"There's no extra money sloshing around at the state level,"
said NASBO's Pattison. "They're not going to have money to make
up for the federal spending cuts."