Governors' report: State finances strong nationwide, but worries about lean times ahead
BYLINE: By ROBERT TANNER, AP National Writer
States spent freely this year, though worry about tighter times ahead are resulting in more modest plans for the new fiscal year that starts this summer, the nation's governors reported Tuesday.
Overall state spending rose this year well above average growth up 8.6 percent nationally over the previous year, compared to 6.5 percent growth on average over the past three decades. That heavier spending helped states cover higher costs for health care, education and employee pensions, according to a new survey from the National Governors Association and the National Association of State Budget Officers.
They were able to do so because revenues came in stronger than expected in the current fiscal year, as they generally have for the last several years. Fiscal conditions remain "strong, stable, not quite as incredibly good as (this year), but still incredibly good," said Scott Pattison, executive director of the budget officers group.
For all but four states, the current fiscal year ends June 30.
The new survey found:
Revenues came in above or on target in 41 states. Nine states saw revenues fall below projections.
For the overwhelming majority of states, budget plans have held together. Only three states Michigan, Rhode Island and Wisconsin were forced to cut budgets, while New Jersey estimated a shortfall but did not enact cuts, the report found.
Year-end balances, an important sign of the ability to withstand an economic downturn, were estimated at 6 percent of expenditures for the upcoming fiscal 2008. The report called those balances "healthy," while noting they had dropped from 11 percent in 2006.
The higher spending is a natural reaction to the downturn of 2002-04, said Ray Scheppach, the NGA's executive director. "We don't think it's out of line," he said.
The report predicts much slower economic growth in the next fiscal year, with spending growing at roughly half of this year's rate, or 4.2 percent.
The relatively strong finances are a stark contrast from the rough budgets states faced after 2001. But finance officers warned that there were signs of turbulence ahead.
For instance, the number of states preparing for their spending plans to either shrink or grow less than 5 percent went from 17 this year to an estimated 24 next year.
Separately, a report two months ago on state finances found a growing concern about weakness in state sales tax revenues, and the possibility that might lead to more widespread revenue problems.
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