Most States Again Facing Budget Declines

BOSTON (AP) _ The fiscal health of states is again in decline, with end-of-year balances down in the 2007 fiscal year and expected to drop again, according to a new report. <br/><br/>In all, the year-end

Thursday, August 9th 2007, 7:23 am

By: News On 6

BOSTON (AP) _ The fiscal health of states is again in decline, with end-of-year balances down in the 2007 fiscal year and expected to drop again, according to a new report.

In all, the year-end balances of 28 states dropped from the 2006 to 2007 fiscal years, while just 17 rose, according to the report by the National Conference of State Legislatures released Thursday.

``The slowing of the overall economy is affecting states' revenue growth,'' said Corina Eckl, one of the authors of the report. ``They are going to have to be watchful. There are going to be more demands for state services than there are revenues to support them.''

There were some bright spots in the report.

Although year-end balances fell overall after a recovery in 2005, the portion of money contributed to rainy day funds was up, meaning states will have more savings. And despite the downward trend, the fiscal condition of most states is still solid, in part because many states brought their unspent reserves into the new fiscal year.

Revenues are still projected to lag behind spending, though.

Overall revenues grew at an average of 4.3 percent among the 45 states that contributed information to the report.

Bob Burns, a Republican state senator from Arizona and chairman of the senate appropriations committee, said the drop in revenues will force some cuts and could force the state to dip into reserves.

``It's going to create problems in a way and in a way it will help head off problems,'' he said. ``When legislative members realize there's a real tight revenue situation the push to start new programs or expand programs is relieved a little bit.''

Despite worries about a downturn, Legislatures found several ways to increase spending.

The biggest jump in fiscal 2008 spending was to Medicaid, which grew overall by 8.1 percent, followed by spending on higher education, K-12 education and prisons.

Ten states budgeted double-digit growth in spending for K-12 education. Texas topped the list with a 32 percent jump, followed by Alaska at 25.9 percent, and Maryland at 15 percent.

State lawmakers were on the whole reluctant to resort to new taxes, which declined overall for the sixth straight year, according to the report.

Property taxes fell by a total of $702 million, with 20 states approving cuts and just three approving increases. Sales and use taxes also fell _ by about $522 million _ with some states reducing or eliminating the sales tax on groceries.

The biggest spike in new taxes came on the sale of tobacco or alcohol _ a $777 million increase. Tennessee tripled its tax on cigarettes while Indiana approved a 40 cents per pack cigarette tax hike.

Five states had not finished their budgets in time for the report: California, Illinois, Michigan, North Carolina and Wisconsin.