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STEVE INSKEEP, HOST:

Now let's talk about recovery from a financial disaster. The Great Recession devastated state budgets as tax revenues went down.

RENEE MONTAGNE, HOST:

The federal stimulus law of 2009 put off the pain for a while, but states finally had to slash their workforces and benefits as that money ran out. Now the economic recovery has produced new tax revenue from California to Florida.

INSKEEP: Which leaves lawmakers with a new question: How to spend the money?

NPR's Greg Allen reports.

GREG ALLEN, BYLINE: The last three years have not been easy ones for elected officials. Nearly every state requires them to produce a balanced budget. And with declining revenue from sales, property and income taxes, that's meant big spending cuts. But with the economy in slow recovery, tax receipts have improved. And governors like Florida's Rick Scott find they now have good news to report.

GOVERNOR RICK SCOTT: We have a projected budget surplus for the first time in six years.

(APPLAUSE)

ALLEN: State economists say Florida is on track to take in $3.5 billion more in revenue than it did last year. Like all states, Florida faces a lot of uncertainty. Will the economy continue to improve? How much will it need to spend on health care? What impact will budget sequestration have on the flow of federal money to the states? But even with all those caveats, Scott Pattison with the National Association of State Budget Officers says states have hit an important milestone.

SCOTT PATTISON: This will be the first year in which states will be back to their pre-recession budget levels.

ALLEN: Florida, like many states, is putting much of the surplus into education. After cutting education spending by more than a billion dollars in his first year, Governor Scott is now proposing a $2,500 across-the-board raise for teachers. Scott, by the way, is running for reelection next year. One way many states balanced their budget over the last few years was by tapping their rainy day funds. Now states like North Carolina and Michigan are putting money back in. Too much, according to some critics. In Michigan, for example, Democrats and local officials want to tap some of the millions of dollars earmarked for the fund by Republican Governor Rick Snyder. But Pattison says while nearly all states are seeing more revenue, some have underfunded pension plans that will quickly claim any additional money.

PATTISON: And a state like Illinois is really looking at a situation like that where they might see some improvement in the revenue picture, but on the expense side, pension liability, that's actually growing faster.

ALLEN: In states like Florida, California and Arizona, the improving housing market has helped. In the Midwest, resurgence of the auto industry has made all the difference. In Ohio, for example, two years ago, Governor John Kasich and the Republican-controlled legislature had to plug an $8 billion deficit hole. Paul Beck, a professor emeritus of political science at Ohio State University, says that meant less money for schools and local government.

PAUL BECK: They were pretty massive cuts, and local governments and school districts were basically having to tighten their belts considerably. There was a substantial downturn in government jobs in Ohio, particularly at the local level.

ALLEN: Now that Ohio has a budget surplus, the discussions between Kasich and lawmakers aren't about restoring spending to schools and local governments; most of the money is earmarked for tax cuts. Montana, Indiana and Oklahoma are a few of the other states also using their surpluses to fund tax reductions. But in no state is the budget turnaround more dramatic than in California. Two years ago, Governor Jerry Brown was looking at a $25 billion budget deficit. This year Brown's budget increases spending by 5 percent. The improving economy helps, but the key factor was a referendum approved by voters last year that increased taxes to help fund education. Sherry Bebitch Jeffe is a senior fellow at University of Southern California's Price School of Public Policy.

SHERRY BEBITCH JEFFE: It gave us breathing room. A lot of it, as always, is a bet on the economy. But it's only a temporary fix. And so you're going to see another cycle of boom and bust at some point.

ALLEN: In California and other states, the question is how long will this current growth last? Because of the recession, states and local governments laid off nearly three-quarters of a million workers. If growth continues and budgets keep improving, the hope is some of those workers may be rehired. Greg Allen, NPR News, Miami.

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