States Finances Go From Bad to Worse, NCSL Says

Just three months into the current fiscal year, nearly every state government is reaping less tax revenue than predicted, leading over two dozen states to mull cuts to programs and services, according to a report released Thursday (11/1) by the National Conference of State Legislatures.

"The news is not good. With only a few exceptions, state fiscal conditions have taken a dramatic downturn," says the report. "Moreover, as legislative fiscal analysts look ahead, the outlook is bleak."

The report's major findings are troubling:

  • State revenue growth has slowed dramatically. Forty-four states report that revenues were below forecast levels in the opening months of fiscal year 2002.
  • Nineteen states report that current spending is exceeding budgeted levels, with another seven reporting that overspending in some programs is likely.
  • Medicaid continues to exceed budgeted levels, proving to be an ongoing problem in many states.
  • At least 28 states have implemented or are considering budget cuts or holdbacks.
  • Twenty states may tap reserve funds to balance their current budgets. Most of these states are eyeing their rainy day funds, although a handful may tap tobacco settlement funds.
  • Fourteen states have implemented belt-tightening measures that include hiring freezes, cancellations of capital projects and travel restrictions.
  • Seven states will convene or have convened special sessions to address budget problems.
  • Several others are considering special sessions.

The budget outlook for the rest of the year is worrisome because economic conditions are expected to get worse before they get better.

NCSL's "State Fiscal Outlook for 2002 - October Update" takes a comprehensive look at state finances over the first few months of the current fiscal year, which began July 1 for all but four states. The information was gathered from mid- to late-October and does not fully reflect the impact of the Sept. 11 terrorist attacks.