State Fiscal Picture Brightening

For the first time in more than two years, a handful of states are reporting that recent tax collections are meeting and even exceeding estimates and that the future revenue picture is growing brighter.

The evidence at this point is scattered a surplus here, a good forecast there. But taken as a whole it signals good news for states, many of which have been forced to cut programs and raise taxes to cope with more than two years of budget deficits. And while it may be too soon to drive nails in the “State Budget Crisis” coffin, some state officials are readying their hammers.

“I think the major thing is that we feel like we’ve bottomed out and are coming back up,” said Kansas Budget Director Duane Goossen, adding that the state expects revenue growth of 3 percent this year and the next.

“It’s a big change from even a year ago,” he said. “Our budget is completely sufficient to get us through this fiscal year. We are planning no midyear cutbacks. We do not have a deficit.”

Kansas’ situation is by no means the norm. Some states, such as California and Michigan, are still expecting large deficits next year. And nearly every state is coping with the equivalent of a fiscal hangover, meaning that even revenue growth of a few percent won’t be enough to meet pent-up demand.

But Kansas is one of a growing number of states whose budget situations have at least stabilized in recent months. Some other examples:

• Arkansas’ revenues increased 4.5 percent during the first four months of this fiscal year (July through October) compared to the same period last year.
• Georgia tax collections rose 6.1 percent in October, the third consecutive month of improvement, for a total increase of 4.7 percent for the first four months of the fiscal year. 
• Colorado predicts revenue growth of 5.8 percent for fiscal year 2005, which begins July 1, 2004. 
• Delaware predicts that revenues will be 7 percent higher in fiscal year 2005 than they are this year.
• Vermont revenues grew 7 percent during the first four months of this fiscal year compared to the same period last year, leading to a surplus of $20 million. 
• New Hampshire revenues beat estimates for the month of October by $9.7 million. For the first four months of the fiscal year, revenues are running just $8.8 million below projections. 
• Oklahoma tax collections in October were $35.7 million, or 10.4 percent above last year’s October receipts.

“We continue to see signs that the state’s economy has begun to recover,” said Scott Meacham, director of the Oklahoma Office of State Finance. “Signs remain generally positive for continued economic strength.”

These signs track with recent reports of economic strength at the national level. The nation’s economy gained 286,000 jobs from August through October, according to the U.S. Department of Labor. This is the strongest job growth since the close of the 2001 recession.

And the economy grew at a 7.2 percent annual rate during the third quarter of this year, which is the fastest growth in the last 20 years. Many analysts and officials, including Federal Reserve Chairman Alan Greenspan, expect this growth to continue into next year, albeit at a slower rate.

“I’m certainly more optimistic,” said Scott Patisson, executive director of the National Association of State Budget Officers. “A year ago, everyone was saying doom and gloom. Now you’re hearing some of the smaller and medium states say, ‘Well, maybe it’s not that bad.'”