Did You Know?

Most States End 2007 on a High Note, But Voice Concerns About the Future

Budget conditions remained healthy in many states as fiscal year 2007 came to a close. Most states saw both higher-than-anticipated revenue collections and stable spending levels. This resulted in unexpected revenue growth in 42 states at some point during the fiscal period, according to the National Conference of State Legislatures’ (NCSL) State Budget Update: March 2007.

Unexpected funds often came from increased personal and corporate income tax proceeds. More than half of states that levy these taxes reported that collections were above forecasts, and an additional quarter reported that forecasts were on target with actual collections. These favorable conditions prompted 21 states to increase their original total revenue forecasts at some point during fiscal year 2007.

Despite strong overall revenue collections, weaknesses in several tax categories sparked concern about slowing revenue growth. The weakest performance was seen among sales and use taxes. Of the 45 states that levy sales and use taxes, 14 states reported collections below forecasted levels. In addition, states are contending with accelerating Medicaid costs, which rose 9.2% in the first quarter of the year–the highest quarterly growth rate ever recorded, according to USA Today.

State Plans for Unexpected Funds

Using all or some of the resources for one-time projects
Building resources into the budget base
Making deposits to rainy day funds or other state funds
Reducing taxes
Carrying resources forward into the next fiscal period
Maintaining an un-obligated balance

For more information about your stateas specific plan, see the NCSL report.

Among states that experienced unexpected revenue gains in 2007, some are planning to use a portion of those funds to hedge against slowing revenue growth and future expenditure pressures. According to NCSL, two such strategies include carrying the resources into the next fiscal period to support future spending and leaving the resources as an un-obligated balance in the current fiscal period. Other popular plans for allocating unexpected funds include: using the resources for one-time programs, building the resources into the budget base, making deposits to rainy day funds or reducing taxes.

Sources: State Budget Update, March 2007, National Conference of State Legislatures, April 2007. http://www.ncsl.org/programs/press/2007/pr070419budget.htm.

“States’ revenue growth sluggish,” USA TODAY, Thursday, June 21, 2007.http://www.usatoday.com/news/nation/2007-06-20-states-revenue_N.htm