Newspaper article The Christian Science Monitor

Hold off on Cutting Police and School Band ; States Are Cautiously Optimistic on Budgets as Revenues Rise. but They're Not Going on Spending Sprees Yet

Newspaper article The Christian Science Monitor

Hold off on Cutting Police and School Band ; States Are Cautiously Optimistic on Budgets as Revenues Rise. but They're Not Going on Spending Sprees Yet

Article excerpt

Three years after they got hit with a double dose of trouble - nationwide recession and the psychological wallop of the 9/11 terrorist attacks - states are rediscovering economic solvency. From Oregon to Massachusetts, revenues are up and budgets are easier to balance, relieving some of the pressures to cut school programs and other services that taxpayers have gotten used to.

"The recent state fiscal turmoil is starting to recede," the National Governors Association reports. That doesn't mean state houses are back in fat city, however - just that most budget cutting has moved from draconian to more manageable levels. Two years ago, for example, 37 states had to cut their budgets a total of $12.6 billion; for fiscal year 2004, 18 states cut budgets a total of $4.8 billion.

Unlike the federal government, most states must pass budgets in which spending and revenues are in balance. For 46 of the 50 states, the current fiscal year ends June 30.

While the economic recovery takes a while to have a positive effect on state revenues and therefore the programs those revenues support, 32 of those 46 states now anticipate budget surpluses for the 2005 fiscal year that begins July 1.

State government revenues have grown (beyond inflation) for three consecutive quarters, a clear sign that revenue growth is returning to pre-recession levels. Still, it's too soon for governors and state lawmakers to sing "Happy Days Are Here Again."

"While the curve is now clearly headed upward, it may still be years before the states have as much real revenue as they had before the recession," the Nelson A. Rockefeller Institute of Government at the State University of New York reported recently. As a result, the researchers found, "the budget debate still features spending reductions and tax increases."

Amid hope, tough choices remain

Though sales and corporate income taxes are growing, most of that revenue increase comes from the personal income tax. This reflects a strengthening economy, especially in places like the Pacific Northwest, where record-high unemployment rates have started to drop as people return to work and some new jobs are created.

Though its unemployment rate is still a relatively high 6.8 percent (down from 7.5 percent in March), Oregon is experiencing the highest job growth in four years. Next door in Washington State, employment will reach pre-recession levels by the end of the 2004, officials reported last week. In the bistate Portland-Vancouver metropolitan area, the number of unemployed persons is 24 percent lower than it was a year ago.

"The strengthening economy is great news for citizens," says Washington State budget director Marty Brown. "But their state budget is still not out of the woods. We will have to make difficult choices. …

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