Survey: State budgets healthy, offer more options

States are on the strongest financial footing since the start of the decade, with tax collections and reserves solid and spending up, though pressures remain on health care, a new survey found.

The budgets are giving lawmakers and governors more choices, providing the financial flexibility to cut taxes and fees by $2.1 billion overall in the fiscal year that began, in all but four states, in July, according to the report by the National Governors Association and the National Association of State Budget Officers released Wednesday.

That’s the first aggregate tax and fee reduction after five straight years of tax and fee increases that totaled $24 billion. As lawmakers this winter begin debating next year’s budgets, tax cuts and spending increases are likely to be considered in many states, officials said.

“I’d classify it as kind of a sweet spot,” said Ray Scheppach, the NGA’s executive director.

The healthy position comes from revenues that came in above expectations or on target last year in all 50 states, and an easing of the rate of growth for Medicaid, the joint federal-state health care program for the poor.

In Maine, projected revenues are expected to increase by more than $87 million during the current fiscal year and another $180 million or so for the two-year budget cycle that begins in midyear 2007.

Increases in those ranges would help to ease, but would not erase, budgetary pressures facing Maine’s newly seated Legislature and Gov. John Baldacci as he heads into a second term.

The NGA and budget officers’ survey found:

. State spending grew by 8.7 percent in the last fiscal year and is projected to grow by 7.0 percent in the current fiscal year. Both are higher than the 6.4 percent average over the past 29 years.

. State surpluses and reserves were at 9.8 percent of all expenditures last year, near the record of 10.4 percent in 2000, though current budgets will see those reserves fall slightly this year.

. Despite the overall strength, two states – Louisiana and Indiana – had to make midyear budget cuts last year, compared to five states with midyear cuts in 2005.

The report was slightly rosier than another report from the National Conference of State Legislatures last week. The NCSL report warned that state tax collections were showing signs of weakness, though it noted that the holiday season, if strong enough, could erase those problems.

The differences reflect the governors’ association survey of budgets, started this summer, while the legislators’ group tracked more recent numbers through last month, said Scott Pattison, NASBO’s executive director.

“It’s a snapshot that’s open to interpretation. The big question is at what point are we going to peak? Or have we?” Pattison said.