Driven by robust tax revenues, state finances are surging again after years of anemic growth, giving governors and lawmakers an infusion of cash to spend on raises for state workers, preschool programs for the poor, and new roads.
The nation's governors reported Thursday that soaring income, sales and corporate tax receipts beat expectations in 42 states during the budget year that ended in June. That is a stark reversal of fortunes from the dark days of 2002, when 42 states saw revenues fall below estimates.
"There's no question, we've turned the corner," said Iowa Rep. Bill Dix, chairman of the House committee that helps write his state's $5.1 billion budget.
Still, long-delayed spending needs and the rising costs of education and Medicaid, the health care program for the poor, are placing heavy pressure on state budgets. The report urged caution, warning that states faced difficult choices ahead.
But in comparison to the last three years, the study by the National Association of State Budget Officers and the National Governors Association, coupled with several other recent reports, portray a remarkable economic turnaround during the 2005 fiscal year. All but four states operate on a fiscal year that runs from July through June.
"The good news is that states' fiscal conditions have really stabilized," said Scott Pattison, executive director of the budget officers group.
Among the reports findings:
_Revenues were 2.1 percent higher than estimated, with corporate taxes alone 8.8 percent above estimates. A separate report found that tax revenue in the January-through-March quarter alone rose 11.7 percent from the previous year's quarter, the highest rise since 1991.
_Spending was up 6.6 percent from fiscal year 2004 in state general funds, after three years of much slower growth. General fund spending pays for most state services.
_Only five states had to make cuts after they had passed their 2005 budget, down sharply from 2004, when 18 states had to cut budgets midyear. In both 2003 and 2002, 37 states had to cut budgets midyear.
For Dix, the Iowa lawmaker, strong growth in sales and income taxes gave lawmakers an extra $340 million to spend.
New money went to Medicaid and K-12 education. State workers got raises. Gov. Tom Vilsack won funds to expand preschool programs to more poor children. Another $300 million went to replenish reserve funds that helped the state get through the tough times of the last few years.
But some state officials remain cautious.
"We really do not have clear enough trends, especially with the $60 oil (per barrel), to be assured that this year's improvements will continue," said North Carolina Democratic Rep. Paul Luebke, where lawmakers and Gov. Mike Easley are still arguing over their 2006 budget.
There's reason to be cautious, the report found, because the state share of the joint federal-state Medicaid program is estimated to grow 16.7 percent in fiscal 2005 and 6.9 percent in fiscal 2006.
Twenty-four states saw shortfalls between the amount budgeted for Medicaid and the amount needed in the year that just ended, and enrollment continues to rise at roughly 4 percent a year.
"Medicaid and health care continue to be a crisis at the state level," said Ray Scheppach, the NGA's executive director.
Helping to drive the revenue growth are increased taxes and fees, as states raised taxes and fees by $3.5 billion overall for fiscal year 2005.
For Dix, the hard times forced important choices. "We made state government a little bit leaner, and that's good," he said. Now, he said, with more cash, it's harder to say no.
