State Budget Crunch Eases, But Health Care a Worry

The good news for states is that more tax money is flowing into their coffers, but the bad news is that rising health care costs and less federal aid will likely mean another year of belt-tightening, state fiscal experts said in a report released Dec. 9.

Spiraling health care costs are expected to top most states’ 2005 legislative agendas, the National Conference of State Legislatures said in its latest budget report.

Most state legislatures will reconvene in January and begin making their budgets for fiscal 2006, which begins July 1 for all but four states.

Sixteen states are already over budget and will have to find more money this fiscal year for Medicaid, the health safety-net program for 52 million disabled and poor Americans, according to NCSL’s 50-state survey of state fiscal experts.

On the plus side, states are finding more money in their coffers than expected, thanks to higher tax collections. NCSL reports that revenues for the first few months of fiscal 2005 are at or above projections in almost every state.

Personal income and sales tax collectionsabout two-thirds of state tax revenuesare above target in almost every state, NCSL said. Corporate income taxes, which make up only 5 percent of state revenues, also are coming in above expectations. Some states, including Arizona, Kansas and Maine, are seeing double-digit growth in the amount of corporate income taxes compared to what they had figured, NCSL said. Georgia’s corporate income taxes, for example, are 97 percent higher than expected.

The boost in revenue is a relief to states after weathering tough budgets for the last four years.

The 2001 recession that cost people jobs and the high-tech crash that brought sharp declines in stock market values meant states collected fewer taxes. Since fiscal 2001, states had to close budget gaps totaling more than $235 billion, NCSL said.

In this fiscal year (2005), only Michigan, Nebraska and New Hampshire report that they may run out of money and will have to find a way to fill the gaps. Every state except Vermont requires balanced budgets. In fiscal 2003, 31 states reported budget gaps.

“Revenue improvement is extremely welcome news,” said NCSL President Del. John Hurson(D) of Maryland in a prepared statement. “However, higher Medicaid costs and concerns for programs that have been cut or under funded in the last few years will put tremendous pressure on state budgets.”

Medicaid and health matters are expected to rank among the top fiscal issues, 30 states told NCSL. States said they were worried about growing Medicaid caseloads on top of cuts in federal help. Congress gave the states $10 billion to help cover the costs of Medicaid in 2003, but the grant expired in fiscal 2004 and Washington is not likely to repeat that bailout.

Figuring out how to pay for elementary and secondary education also will rank near the top of the agenda for 26 states, according to results of the NCSL survey.