States Take Advantage of Budget Surpluses Fiscal year 2006 provided many states with unexpected budget surpluses that allowed them to splurge on things like new stadiums and other projects. What's in store for 2007?
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States Take Advantage of Budget Surpluses

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States Take Advantage of Budget Surpluses

States Take Advantage of Budget Surpluses

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MADELEINE BRAND, host:

Once the New Year begins, state legislatures across the country will begin grappling with how to spend your money, and whether there is enough to go around for schools, roads, health care and public services.

NPR's David Schaper reports.

DAVID SCHAPER: If state governments were like us, sitting at the kitchen or at the home computer, going through the check ledger or going through bank statements to figure out how much money we made and where it all went - instead of narrowing their eyes or furrowing their brow - most states would be cracking a big smile.

Mr. SCOTT PATTISON (Executive Director, National Association of State Budget Officers): All of the data shows that the fiscal situation in the States right now is really phenomenal.

SCHAPER: Scott Pattison is the executive director of the National Association of State Budget Officers, which, along with the National Governors Association, just put out a year-end report looking at state budget finances.

Mr. PATTISON: This is the first time that this report has shown an aggregate tax cut for states instead of tax increases that we over the last few years.

SCHAPER: Twenty-four states actually cut taxes, Pattison says, while almost the others were able to hold the line because revenue growth was so strong. In all 50 states, the report indicates revenue growth met or exceeded expectations. Ray Scheppach is executive director of the National Governors Association.

Mr. RAY SCHEPPACH (Executive Director, National Governors Association): A lot of states are receiving revenue growth in the double digits. So 10, 11, 12 or even 13, 14 percent over the last couple of years, and the big surprise is Medicaid.

SCHAPER: That's because Medicaid costs, which on average account for nearly a quarter of state's budget, aren't rising nearly as fast as they had been. After years of double-digit annual increases, the cost of providing medical coverage to the poor is rising by as little as 4 to 5 percent now.

Mr. SCHEPPACH: So what you've got is a combination of really very good revenue growth, coupled with the major spending increase really coming under control.

SCHAPER: So after slashing budgets in the first few years of this decade, how are states spending their extra cash? Corina Eckl, of the National Conference of State Legislatures, says they haven't gone on any wild spending binges.

Ms. CORINA ECKL (National Conference of State Legislatures): You know, I think there's been a collective sigh of relief, more than sort of jubilation. Sort of a, gosh we now have some money that we can put toward a lot of these un-funded or under funded categories of spending.

SCHAPER: Education, healthcare, and restoring funding to agencies and programs that had been cut in previous years are all getting extra resources now. States have been catching up on infrastructure improvements and other projects they put off in leaner years. A few are building new stadiums, schools, and campus buildings. But Eckl says most governors, lawmakers, and budget officials know these good times are often followed by bad, and there may already be some clouds on the horizon.

Ms. ECKL: Unlike last year, we're seeing more categories of state taxes starting to under-perform, not meet expectations, maybe showing some signs of weakness.

SCHAPER: Eckl says sales tax revenue from December will be a critical indicator of whether state budgets will end up balanced in 2007.

Many states have been preparing for a downturn by funneling some extra money this year into rainy day funds. But just like those of us sitting around the kitchen table - worrying that we may not be able to afford the new roof when we need it, college for our kids, or that we're not putting away enough money for retirement - Corina Eckl says most states have long-term funding worries too.

Ms. ECKL: There's some items looming that carry very big price tags - un-funded pension liabilities being one. And another big that's just starting to get some attention is the retiree healthcare costs that many states have promised their retired employees.

SCHAPER: Eckl and other state budget experts says it's better that those states with looming pension and retiree healthcare funding problems address them soon, especially in good fiscal times. If they wait too long, fixing them could require hefty tax increases.

David Schaper, NPR News.

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