Soaring state revenues beat expectations

State revenues are soaring beyond expectations in 38 states, making it easier to balance budgets and absorb continuing cost overruns in Medicaid and other health care programs, according to the most recent figures from the National Conference of State Legislatures.

After weathering years of budget shortfalls early this decade when states fell more than $235 billion in the red, states now report they expect to collect $28.9 billion more than projected for fiscal 2006, which ends June 30 for all but four states.

NCSL reported at its annual spring meeting in Washington, D.C., that only Indiana, New Mexico and Wisconsin have had to revise downward the amount of state revenue they expect to collect before the end of the fiscal year. Nine states (Connecticut, Florida, Michigan, New Hampshire, New Jersey, Nevada, North Dakota, Ohio and Texas) reported no change in their revenue estimates since the beginning of the year. NCSL plan to release its survey, including state-by-state budget data, on Monday, April 10.

The report comes as most states are in the midst of crafting new state budgets for fiscal 2007 that take effect July 1 and as state lawmakers met in the nation's capital to discuss state policy and meet with congressional and Bush administration officials.

Despite surging state revenues, 19 states still reported spending overruns in programs such as Medicaid, corrections and energy assistance for the poor. Medicaid, the state-federal insurance program for the poor, in recent years has eclipsed elementary and secondary education as the largest chunk of state budgets, when federal dollars spent by states are factored in.

In a session Friday with former Utah Gov. Mike Leavitt, the U.S. secretary of health and human services, state lawmakers were encouraged to take advantage of the flexibility Congress gave states in Medicaid earlier this year. Leavitt noted that the federal budget-cutting package approved in February lets states change the benefit packages they offer to Medicaid recipients, impose fees and co-payments for certain services, use plans based on health savings accounts and encourage seniors to get treatment at home rather than at nursing homes.

Leavitt said he would be open to other ideas states proposed.

"I'm telling you today if you'll bring to me an idea that covers more people, more efficiently in a budget-neutral way - which is what all of you are looking for - you'll have a ready partner here. I'm looking for ideas of innovation," he said.

In the survey of state legislative fiscal directors conducted at the end of March, 18 states reported that revenue collections have exceeded targets in every major tax category — sales and use, personal income and corporate income.

"These are the best financial conditions I've seen in my 16 years in office," said North Dakota state Rep. Ken Svedjan (R).

South Dakota, which recently approved a 3 percent across-the-board raise for state employees, has raised its revenue projections by $20 million two times this year.

"We've just had extraordinary growth, and our economy keeps exceeding our expectations," said South Dakota state Rep. Deb Peters (R).

Even in Gulf Coast states ravaged by Hurricane Katrina last summerl, revenue estimates have been revised upward, mostly because of massive reconstruction investments.

"We do have revenues exceeding projections, but what we're seeing is that post-disaster boom. It's not the way you want to see a boom created, I can assure you that," said Max Arinder, executive director of a Mississippi joint legislative committee on state spending.

After years of cost-cutting, state lawmakers warn much of the surplus will be used to revitalize programs that have been neglected during the hard times. Higher education and transportation are expected to be two of the main beneficiaries nationally.

Taxpayers and businesses will benefit, too. In Oregon, state lawmakers can't use the extra revenue because state law requires the government to return most of it. At the end of fiscal year 2007, when Oregon finishes its two-year budget, the state must give back an estimated $666 million out of $785 million in surplus, according to NCSL.

While only three states are running behind their revenue forecasts and might have to make adjustments to stay in the black this fiscal year, the longer-term outlook is still a concern. According to the NCSL survey, expenses will exceed revenues in 10 states in fiscal 2007 - and 19 states in fiscal 2008 — if spending and collections increase at their current pace.

Still, "it's promising considering what we saw two to three years ago," said Corina Eckl, fiscal affairs director at NCSL. 

Staff Writer Dan Vock contributed to this report.