IE 11 is not supported. For an optimal experience visit our site on another browser.

Strong economy helped states save money

State lawmakers are saving lots of money for a rainy day because of improving economies and conservative economic forecasts, a report released Tuesday says.
/ Source: The Associated Press

State lawmakers are saving lots of money for a rainy day because of improving economies and conservative economic forecasts, a report released Tuesday says.

State governments saved about $1 out of every $10 in their budgets in the most recent fiscal year, according to a survey released at the annual meeting of the National Conference of State Legislatures.

The $57 billion total saved by legislatures around the country marks a 25 percent jump from the previous budget year and is one of the highest levels in decades.

The study credits conservative forecasting for the year-end balances, which are considered a top indicator of states' fiscal health.

Cumulative revenues had been projected to grow by 2.7 percent for last budget year, but they ended up growing by 7.7 percent instead, nearly three times more than expected, the study said.

Nationwide, state lawmakers have been closely watching the bottom line since an economic downturn in 2001 launched many states into consecutive years of falling revenue that forced painful spending cuts, tax increases and borrowing. Their revenue forecasts are made up to 18 months in advance, so many state budgets were based on more conservative expectations.

"State legislators have learned from the budget crisis of the early part of the decade, as we can see by the prudent choices they're making now," said NCSL President Steve Rauschenberger, an Illinois state senator.

Twenty-eight states' year-end balances increased over the 2004-2005 budget year, 19 states' balances declined and two experienced no change. No state ended with a deficit, though Arkansas was expected to end with a zero balance.

Nearly half the states' surpluses went into rainy day and other reserve funds:

  • Florida left $1.6 billion in its General Revenue Fund Reserve.
  • Maryland increased its rainy day fund by $593 million, Connecticut added $440 million, Georgia planned to add $430 million, and Virginia prepaid deposits for future years. Tennessee added $172 million.
  • Alaska put $300 million into its Public Education Fund while placing another $300 million in a new reserve fund.
  • Wyoming sent $200 million to its Permanent Mineral Trust Fund, and New Mexico placed $40 million into its Water Trust Fund.

Only three states — Nevada, New Hampshire and New Jersey — reported a decrease in spending compared with the previous year.

Thirty-nine states, meanwhile, boosted spending by at least 5 percent, with 16 of them spending at least 10 percent more than the previous year.

The report by the NCSL, a bipartisan organization that provides research and technical assistance to state leaders, found that even in good economic times, many state economic forecasters are reluctant to boost revenue projections.

Forecasters cite the unpredictability of income tax collections as a reason for expecting a 29 percent decrease in balances at the end of the current budget year — including a 14 percent drop in rainy day fund balances.

Those expected decreases in year-end balances come as states have budgeted a 7.6 percent hike of their general fund spending levels. Louisiana, New Mexico and Oregon are the only states planning to spend less this year than last.

For the first time in six years, Medicaid spending is not expected to be the fastest growing budget category, the study found. The top spot has been taken by K-12 education costs, which are budgeted to grow 7.6 percent, followed by higher education and Medicaid at 6.3 percent each. Corrections spending is slated to grow by 5.7 percent.

Forty-four states combined to raise $1.4 billion in new tax collections — well below the $2.6 billion increase last year. The slower rate of tax increases indicate "that states are throttling back on new revenue actions," according to the report.

Three states account for a $478 million in cigarette tax increases: Texas raised its cigarette tax by $1 per pack, Vermont hiked its tax by 60 cents and New Jersey approved a 17.5 cent increase.