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States expect budget shortfalls Original Source Link: (May no longer be active)
http://www.forbes.com/markets/newswire/2004/02/19/rtr1268480.htmlhttp://www.forbes.com/markets/newswire/2004/02/19/rtr1268480.html
U.S. states face uncertain 2005 despite rosier '04
Reuters, 02.19.04, 6:00 PM ET
By Kristin Roberts
MIAMI, Feb 19 (Reuters) - U.S. states may use a bit less red ink in their financial statements this year, but more than half expect budget shortfalls to return in fiscal 2005, according to a report released on Thursday.
The National Conference of State Legislatures said states have reported one-tenth of the revenue shortfall in fiscal 2004 than they carried at this point a year ago -- or $2.5 billion compared with $25.7 billion in February 2003.
Next fiscal year, however, the absence of stimulus funds from Washington and depleted reserves following years of one- time revenue snatching to shore up budgets could leave states facing a $35.6 billion cumulative shortfall, the report said.
"There is some promising development, but there is no big cause for celebration," said Corina Eckl, fiscal program director at the National Conference of State Legislatures. "Generally for 2005 it appears more problems are reemerging."
According to the group's survey, the financial picture for most states is a lot rosier this year than last.
So far in fiscal 2004, 18 states have reported shortfalls compared with 36 a year ago. For those who have faced budget gaps, the shortfalls were far less severe than in 2003. What's more, 30 states say they will end the year with surpluses.
But that has been thanks to $20 billion in federal stimulus and Medicaid funds received by states last year, along with the increased fees, deep spending cuts and the use of rainy day funds approved by legislatures in past sessions.
Heading into fiscal 2005, many of those revenue-enhancing options, which were one-time boons, are no longer available to state legislatures to cover expenses that continue to grow.
According to the report, 31 states project budget gaps totaling nearly $36 billion in fiscal 2005, which starts on July 1 for nearly all states.
RAISE TAXES?
At least 15 state legislatures will consider tax increases, while 19 will look at proposals to increase gaming revenue and 12 will examine other revenue measures, such as higher college tuition, according to the NCSL.
California's $15 billion shortfall accounts for a whopping 42 percent of the projected fiscal 2005 budget gap for all states, the group said. The gap is deeper when a $2 billion carry-over deficit from fiscal 2004 is included, the report said.
But the Golden State is not alone. New York faces a $5.1 billion shortfall, followed by budget gaps of $4 billion in New Jersey, $1.7 billion in Illinois and $1.5 billion in Massachusetts, according to the report.
To combat those, many governors and some lawmakers have proposed tax increases that legislatures are now debating.
In Kentucky, Gov. Ernie Fletcher plans to ask lawmakers to lower the personal and corporate income tax rates and expand the sales tax to services. Republican lawmakers on Thursday said Fletcher also wants to implement a controversial 6 percent tax on recreational activities.
Virginia legislators are weighing rival tax plans to fill their $1 billion shortfall as well. The state's House of Delegates this week approved a bill that would abolish a corporate sales tax exemption, which would raise about $520 million, while the Senate Finance Committee cleared a $2.5 billion tax increase plan.
Elsewhere, various cigarette tax increases are being considered in Alabama, Connecticut, Iowa, Missouri, Oklahoma, Virginia and West Virginia, the survey reported.
Copyright 2004, Reuters News Service
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