State Financial Woes: The Story In US

Kansas City | Updated: May 31 2004, 05:30am hrs
From For Sale signs at Mississippi parks to a billion-dollar deficit in Michigan, it is clear the economic recovery has not yet brought back good times to state capitols.

Tax revenues are beginning to meet or exceed estimates, spending remains under control, and the worst financial crisis for state governments since World War II may be passing, according to a new report from the National Association of State Budget Officers.

The crisis, however, is not over, as legislatures in Kansas and Missouri demonstrated this year. Why does that matter Legislatures provide the money for many programs closest to people, like aid to education, highway construction and social services. When states hurt financially, so do those programs.

Were starting to see some stability, with states not having shortfalls, said Scott Pattison, executive director for the budget officers. Theres improvement, but that doesnt mean theres going to be extra money to shower on programs.

During the latter 1990s, states relished the good times, as a booming economy allowed legislatures to both pass tax cuts and increase state spending. Then came the recession.

The effects continue.

Similar to the last couple of years, Kansas did not add any money in per-pupil aid to schools this year. Missouri did approve more education money, but legislators debated cutting indigent health care. And Missouri highways still are badly in need of repair.

The picture looks bleaker elsewhere.

Illinois Gov. Rod Blagojevich this month threatened to lay off 5,000 state workers if legislators did not take serious steps to fix the state budget.

The Texas Legislature, trying to find money for schools, recently finished a special session without agreeing on a solution. Another special session may be called. Courts in half the states including Kansas and Missouri are dealing with legal challenges involving public education, according to www.stateline.org , a state government information service.

In Michigan, budget seers are struggling with a 250-million deficit this year and a possible deficit of 1 billion next year. In Mississippi, budget difficulties prompted the legislature to order the sale, lease or closure of five state parks, all of them drains on state finances.

Its a difficult situation; its what the times dictate, said James Walker, spokesman for the Mississippi Department of Wildlife, Fisheries and Parks.

Given problems such as that, to see Kansas struggling over money for education and Missouri fighting about health-care dollars shouldnt be any surprise.

But more signs of improvement are turning up.

Latest estimates show tax revenue in Missouri running 220 million higher than projected. In Kansas, revenue this year and next year is forecast to increase by a total of 40 million. By state government standards, that is not a huge amount, but state leaders are pleased with the trend.

Our tax revenue is beginning to grow again, said Duane Goossen, Kansas budget director.

The National Conference of State Legislatures recently reported that personal income tax collections in 18 states are above budgeted estimates. Nearly two dozen states report sales tax collections above forecasts, the group said. While budget surpluses were virtually unheard of recently, modest ones now are starting to appear, the group said. Tax increases boosted budgets in some states. But there was a distinct reluctance among legislators to use that approach.

Some might ask why, with revenues going up, states cannot afford to funnel more cash into things such as school aid. Health care is one answer. States pay not only for insurance for their employees, but also for the poor through Medicaid, a federal-state program.

The costs are soaring. Another reason: one-time-only accounting maneuvers. When the recession hit, officials hustled to keep state budgets afloat by postponing expenditures or shifting them from one year to the next. That creates a financial hole, which has to be filled as the economy improves. Missouri saved 250 million by selling bonds, in effect borrowing money from tomorrow for expenses today. The state will gradually have to pay off the bonds, budget director Linda Luebbering said. That can be done. But what Luebbering really fears is pent-up demand for greater spending by state governments, as word spreads about the improved revenue picture and the disappearing recession. Next year people will start to want increases, she said. Theres going to be a lot of people vying for the same money.

JOHN A DVORAK // New York Times