November 6, 2001
Survey: Most states face bleak fiscal futures
Most states, including New York, are predicting much slower revenue growth and a generally bleak fiscal outlook, and more than half of states have enacted budget cuts or limitations on spending, a new survey of states by the National Conference of State Legislatures (NCSL).
"The news is not good," the NCSL's fiscal update concluded. "With only a few exceptions, state fiscal conditions have taken a dramatic downturn. Moreover, as legislative fiscal analysts look ahead, the outlook is bleak."
The report added that conditions in most states are expected to worsen before they improve, and that the update on states' fiscal conditions "does not yet include the economic effects of the Sept. 11 terrorist attacks."
The update is based on information from legislative fiscal directors collected in mid- to late October. It addresses revenues and expenditures through the first several months of 2002 fiscal year, states' plans to address budget shortfalls, and the budget outlook for the rest of the fiscal year.
The survey's highlights include:
- State revenue growth has slowed dramatically. Forty-four states reported that revenues were below forecasted levels in the opening months of FY 2002.
- Nineteen states report that spending currently is exceeding budgeted levels, with another seven reporting that overspending in some program areas is likely. Medicaid continues to exceed budgeted levels, proving to be an ongoing problem in many states.
- At least 28 states have implemented or are considering budget cuts or limitations on spending to address fiscal problems.
- Twenty states may tap reserve funds to balance their FY 2002 budgets. Most states are eyeing their rainy-day funds, the NCSL said, and a few may tap tobacco-settlement funds.
- Fourteen states have implemented belt-tightening measures that include hiring freezes, cancellations of capital projects, and travel restrictions.
- Seven states will convene or have convened in special sessions to address budget problems. Several others are considering special sessions.
Warning signs had begun to emerge late last year when revenues from taxes on sales, personal income, and corporate income "slowed and failed to meet projected levels," the NCSL report said.
"By spring, it was apparent that the revenue bonanza had come to an end."
The NCSL said forecasters took this slowdown into account in giving lawmakers revenue estimates for the 2002 fiscal year. And state legislatures responded to the downturn by projecting a 2.3 percent growth in revenue collections in 2002, compared to a 4.5 percent rate of actual revenue growth in fiscal year 2001.
But even these modest revenue forecasts for fiscal year 2002 "are unlikely to be met," the report said, noting that 44 states are reporting collections below projections just a few months in the new fiscal year.
Across the nation, forecasters are reporting declines in most major tax sources, especially the sales and use tax and personal and corporate income taxes. In some states, the drops are significant.
Sixteen states are in the most difficult circumstances, with both spending overruns and lower-than-expected revenues. New York was classified in a different group with 27 other states, all of which were deemed to have predicted levels of spending but lower-than-expected revenues.
"Although spending is on target for these states, many still face serious fiscal situations because the drop in revenues is significant," the NCSL said.
Only Alabama, Montana, Nevada, New Hampshire and Texas were said to have both spending and revenues on target, the NCSL added.
The revenue picture "is expected to get worse," especially as data that reflect the effects of the Sept. 11 terrorism emerge, the report said.
For the latest official information on New York State's fiscal outlook, visit the state Budget Division Web site