May 3 (Reuters) - Improving revenue will lead more than half of the 50 U.S. states to end this fiscal year with mild surpluses, according to a report released on Th ursday that showed the economic recovery is finally reaching their budgets.
The National Conference of State Legislatures reported that 29 states and the District of Columbia project their fiscal 2012 revenue will exceed budgeted obligations by $9.1 billion. For most states, the fiscal year ends June 30.
“Throughout the Great Recession, spending estimates often proved to be too low and revenue estimates too high, resulting in substantial state budget gaps,” the NCSL said in its report.
“Spending requirements have been relatively stable, and revenues continue to grow, and in some cases have returned to pre-recession levels,” it added.
In four commodity-rich states - Alaska, Indiana, Montana and Wyoming - the surpluses will represent 10 percent of their general fund budgets.
Almost all of the states with surpluses, 21, will put some of the money into reserve funds, and 19 plan to use it in their next budgets. Two states, Arizona and Indiana, will pay off some debt and Indiana will also put part of its surplus into its employee pension fund. Many will also use the money for capital projects.
Only nine states developed new shortfalls this year, totaling $6.8 billion, and 16 states and the District of Columbia project gaps for next fiscal y e ar of $16.2 billion.
Because all states except Vermont must end their fiscal years with balanced budgets, shortfalls lead them to hike taxes or cut spending. At the height of the recession, revenue declines were so large and rapid that many states had to call emergency budget sessions to wipe out new gaps.
Although the economic recovery began in 2009, states have still struggled over the last few years, laying off workers and slashing spending. While the recession was fairly uniform, sparing just a few states, the recovery has been uneven, making policymakers nervous that improvements will not last.
NCSL reported that one-third of states expect in this fiscal year to return to the revenue peaks they reached before the recession, while “many others do not expect a return for at least three years or longer.”
A recent report from the Rockefeller Institute of Government said that, on the whole, states have reached those pre-recession highs, but individually many places still lag.
State lawmakers are also concerned about high unemployment, spending cuts from the federal government, demands for public programs and the global economy, NCSL found.
“The tenor from legislative fiscal directors is one of cautious optimism as state budgets slowly but steadily improve,” the report said.
It found that tax collections have met or exceeded expectations in most states but that “performance was uneven across tax categories,” with sales taxes and corporate income taxes generally stronger than personal income taxes.
Altogether, 12 states and the District of Columbia brought in personal tax collections that were higher than projected, even after three had revised their estimates upward, and 16 met their expectations for personal income taxes.
That compares with 23 states bringing in more sales taxes than expected and 16 “coming in on target.” Sales taxes represent 32 percent of total state revenue, although five states do not levy the tax.
Nonetheless, many states have had spending overruns this year, largely because of Medicaid. States administer the healthcare program for the poor with federal reimbursements, and as health costs rise and the number of unemployed people turning to the program remains high, their spending on it has grown.
Medicaid and similar programs are over budget in 10 states, NCSL said, noting that at this time last year, 20 states were spending more than expected on healthcare.