Balancing State Budgets It's a good year for states looking to balance their budgets. This year, 42 states met or exceeded their budget projections this fiscal year. 's Kathleen Hunter, who writes about state tax and budget policy, talks about state budgets.
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Balancing State Budgets

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Balancing State Budgets

Balancing State Budgets

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From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.


And I'm Michele Norris.

While Washington is mired in an acrimonious debate over how to balance tax cuts and spending cuts in the federal budget, state lawmakers face a much rosier financial picture. After years of falling revenues and fiscal woes, the majority of states are climbing out of the red, thanks largely to a rebound in tax revenues. Forty-two states exceeded revenue predictions for 2005, and a handful ended the fiscal year with record surpluses. To find out what's behind this reversal of fortune, we're joined by Kathleen Hunter. She's a staff writer covering tax and budget policy for

Thanks for coming in.

Ms. KATHLEEN HUNTER ( Thanks, Michele, for having me.

NORRIS: Now explain this. Just a few years ago a majority of the states were facing serious budget shortfalls, and now many of those same states are flush with cash. What's caused this turnaround?

Ms. HUNTER: Really, the turnaround is caused, to a large degree, by the upturn in the economy. The economy nationwide is doing better than it was several years ago. So now we're seeing states, as a result, are doing better with their tax collections. Also, another thing to consider is that states actually had pretty low revenue expectations, given that the economies had been doing so poorly several years ago. So when we see 42 states exceeding their revenue expectations this year, as opposed to in 2002 when 42 states failed to meet their revenue expectations, part of that is that expectations have dropped since states have been facing the fiscal crisis.

NORRIS: So we should be careful. This does not necessarily mean that the economy in 42 states is going like gangbusters.

Ms. HUNTER: Exactly. It's just a sign that things have turned around; states have turned a corner. They're doing better than they were before.

NORRIS: And overall the states are facing a much improved revenue picture, but are there exceptions?

Ms. HUNTER: Yeah, I would say definitely the Gulf Coast states are facing a much tougher time than the rest of the country, as they're trying to rebuild their economies. And Louisiana--a lot of the tax revenue for the state comes from New Orleans, and so in a way the tax base has been sort of obliterated there. There are promising signs out of those states short-term. There was a story today out of Louisiana about how sales taxes actually didn't decrease, as was expected, in September. But the state official, I guess, who was quoted in the story was quick to say that they didn't think that that was a trend that was going to continue and that there was a reason why. That didn't necessarily indicate that Louisiana is doing great.

NORRIS: Several states introduced new taxes, and that accounts for the revenue rebound in some of these cases. I was hoping, Kathleen, that we could tick through some of those new taxes. Several states introduced so-called sin taxes.

Ms. HUNTER: Yes. Sin taxes are pretty much just what they sound like. They can include anything from--the popular one lately has been cigarette taxes. There's also been some states that have introduced new liquor taxes. Some people would consider gaming, expansion of slots, which has been a big issue in states, or adopting a lottery as a kind of sin tax. It's not a direct tax, but it would be, you know, a cost imposed on sinful behavior.

NORRIS: So you got a chance--you've really dug into those, and you've looked at the budgets of all 50 states. What is the budget outlook, and what does it look like in the sort of outgoing five years?

Ms. HUNTER: Well, going out five years, I think--most of the people I've spoken to say that they think that this year's round of surpluses is sort of an aberration; that it's the combination of the rebounding economy, the low expectations for revenues to begin with and a couple of other events that aren't expected to repeat themselves. I think states still have to be pretty concerned about their budgets because they do have Medicaid as a big issue; they have the first wave of baby boomers reaching retirement age in 2008. So that's going to put a lot of strain on states' pension programs and their retirement systems to pay for the health costs and the retirement costs of those employees. There's also cost shifts that are still coming from Washington. So I think the outlook is much better than it was a few years ago, but I think it's too soon to say that it's a completely rosy picture.

NORRIS: Kathleen Hunter, thanks so much.

Ms. HUNTER: Thanks so much for having me.

NORRIS: Kathleen Hunter is a staff writer for She covers tax and budget policy.

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