With Flush Times Gone, States Stare at Deficits
Over the past few years, state governments have been flush with revenues. The downturn in the housing industry and lower sales tax receipts, however, are creating budget deficits.
Abe Lincoln and the Kansas state capitol dome.
Both water and trouble run downhill, and so the weak housing market, the subprime loan debacle and slowing retail sales nationally are leading to lower state tax revenues. A growing number of states are finding that they won't collect as much as forecasters have been predicting.
"State finances are weakening," says the National Conference of State Legislatures, based on a survey of state budgets released just a few days ago. Culprits are the sluggish housing market and declining sales tax revenues. Eleven states have told NCSL that they are lowering their revenue forecasts, including three states that had, for a time, booming housing markets: California, Florida and New York.
Meanwhile, the states that are reporting higher revenues include some places not generally known for their booming housing markets — like Iowa, Kansas and Nebraska. North Dakota reported revenues that were 16.8 percent above forecast. Other states with large rural populations — West Virginia and Utah — also are collecting more in tax revenues than they had expected.
States had been enjoying flush times. According to a recent report from the National Association of State Budget Officers, state general-funding spending grew by 9.3 percent in 2007, well above the 6.4 percent average increase over the past three decades. States were spending more and they were cutting taxes.
Now the tax cuts are over. Last year, states cut a total of $2.1 billion in taxes and fees — this year, only $115 million. Some states are, in fact, raising taxes. Michigan has approved higher income taxes. Maryland raised its sales tax by a penny.
The turnaround in some states has been massive — and fast. Minnesota and Arizona were both predicting billion dollar budget surpluses this time last year. Now, both forecast deficits.
The slowdown is affecting all states differently. Here are several snapshots from the land of state budgets:
“¢ Oklahoma expects only modest increases in state revenues after a four year economic spurt, reports The Oklahoman . In the month of November, for the first time since 2003 all the state's sources of revenue were below the corresponding month from the year before. Oklahoma has been cutting its income tax rates recently.
“¢ Tennessee Gov. Phil Bredesen said this week that state revenues are down and he expects there to be spending cuts in 2008. In the first quarter of the fiscal year, Tennessee reported revenues that were $136 million below projections.
“¢ California has a $10 billion budget deficit and no real plan to deal with the shortfall. The state Department of Finance has suggested a 10 percent across-the-board cut in state spending that, at this point, even includes school expenditures.
“¢ The Kansas legislature will come back to work next month to deal with a state budget that is scheduled to spend $200 million more than it is expected to receive. Revenues in Kansas are projected to be flat next year;the Associated Press reported that "saving the state from going into the red will be the more than $500 million carried over from the current budget year."
“¢ More than 18,000 Rhode Islanders — including 10,000 children — may lose state-subsidized health insurance because of a state budget deficit estimated to be as high as $450 million for the coming year.
“¢ The latest forecast in Minnesota calls for cold weather and a $373 million budget deficit. Last November, the state was predicting a $2.2 billion budget surplus.
“¢ Arizona boasted a $1.5 billion surplus last year. Today, legislators are looking down at a $600 million deficit.
These the states have told NCSL that they are either collecting revenues below their most recent forecasts or reducing their revenue expectations: