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November 27, 2002

Survey: Nearly half of states are reducing spending in response to budget challenges

Nearly half of all states are responding to budget challenges in the current fiscal year by reducing state spending in net enacted budgets, a new analysis shows.

The National Governors Association (NGA) and the National Association of State Budget Officers (NASBO) released their biannual report, The Fiscal Survey of States, on Nov. 25.

"Despite significantly curtailing state spending, 37 states were forced to reduce their enacted budgets by about $12.8 billion in fiscal 2002," the NGA said in a release. "About mid-way through the current fiscal year, 23 states plan to reduce their net enacted budgets by more than $8.3 billion."

Exploding health-care costs and drops in revenue attributable to slow economic growth were among the factors cited by the NGA.

To plug their budget gaps in fiscal 2002, 26 states used across-the-board cuts and used rainy day funds, 15 states laid off employees, 13 states reorganized programs, and 31 used a variety of other methods, the organization's survey found.

Two-thirds of states report spending growth of less than 5 percent in both fiscal 2002 and 2003; 16 states experienced what the NGA release called "negative growth" in fiscal 2002.

The survey also found that dwindling tax collections are plaguing states. In fiscal 2002, sales tax collections were 3.2 percent lower than originally budgeted, personal income tax collections missed states' targets by 12.8 percent, and corporate income taxes were a 21.5 percent lower than projected. Forty-one states collected less revenue in fiscal 2002 than they had planned for in their budgets, the survey showed.