Posted on 03/15/2004 7:03:34 AM PST by tdadams
Americans are unlikely to face major tax increases this year as their state governments emerge from three years of financial trouble by controlling spending and bypassing major new initiatives.
Many states are still weeks or months away from finalizing their spending and tax plans, but early indications are that most governors and legislators will avoid significant tax increases, in part because many are running for re-election.
Some states continue to raise college tuition and other fees, but the fee increases are likely to be smaller than last year's record $4.3 billion.
And millions of Americans will face higher property tax bills because the assessed value of their homes continues to rise, in some areas by double-digit percentages. Property tax revenue, collected mostly by local governments, rose 4.6% last year.
The good news for state governments is that the economy is improving. State and local tax collections rose 4.1% in 2003, the federal government reports. Their total revenue grew even more: 5.3% when federal aid and other incomes sources are included.
Depleted funds
But the new money won't translate immediately into new programs. Instead, states will focus on reducing borrowing, replenishing reserve funds and weaning themselves from a $20 billion federal aid package Congress approved last year.
"Our theme this year is living within our means," says Georgia Gov. Sonny Perdue, a Republican. "The federal money from last year is gone. And we need to build up our rainy day fund, rather than drawing it down."
Last year, Georgia balanced its budget with $700 million in temporary fixes, including a half-billion dollars combined from its reserve fund and extra federal aid. The state expects tax collections to rise $1 billion this year and at least $700 million next year. Despite the additional money, the governor wants to cut spending.
In previous recessions, states often raised taxes to prevent cuts in popular programs. In the past three years, states largely avoided tax increases or spending cuts. Instead, they borrowed record amounts, depleted reserves and used accounting maneuvers such as paying state workers on July 1 instead of June 30 so the cost would be recorded in the next budget year.
The draconian budget cuts that many governors and legislators predicted did not occur. States protected the big programs: health care, education and public safety. Some smaller programs - arts, conservation, historic preservation - were cut. As tax collections rebound, states are proceeding carefully:
• Alabama last year canceled plans to buy new math textbooks. Now, with revenue up 5.5% in its education trust fund, the Legislature is considering spending $42 million on the textbooks after all. But a plan to hire reading teachers in all classrooms from kindergarten through third grade is on hold.
• The University of Arizona raised undergraduate tuition 14%, despite a projected 9% rise in revenue this year and 7% next year. Tuition increases are being considered in other states where revenue is growing: the University of Georgia, up 10%, and the University of Arkansas, up 13%. The Colorado Legislature is considering a 40% tuition increase.
• Washington state added $100 million to budget reserves rather than spend the money.
California still pinched
The fiscal hangover is most extreme in California.
Tax collections are up 5.8% in the first seven months of the state's budget year. Spending is down 0.6%. Even so, the state ran a $6 billion deficit during that time, the legacy of a spending binge from 1999 through 2002 that reduced school class sizes and expanded health care.
California financed its deficits with short-term, credit-card style borrowing. On March 2, voters approved the largest state bond issue in U.S. history: $15 billion to spread the debt over 15 years.
But Republican Gov. Arnold Schwarzenegger and the Democratic-controlled Legislature still must find a way to plug a deficit running nearly $1 billion a month.
"We bought ourselves some time, but we still have spending commitments that cannot be paid for out of our revenue," says Bruce Cain, director of the Institute of Governmental Studies at the University of California-Berkeley.
While California struggles, states that dealt promptly with budget problems are moving forward.
Utah legislators approved an 8.3% spending increase in the state's $8 billion budget. The money will expand health care coverage for the poor, increase reserves and raise salaries for teachers and state employees.
Last year, USA TODAY ranked Utah as the state with the best-managed finances because it balanced its budget during the recession with a minimum of accounting gimmicks and borrowing. "We are prudent by nature," says Gov. Olene Walker, a Republican.
Most state budgets lie between Utah's early recovery and California's desperation.
Kansas is typical. The state pushed financial problems into the future - and that future has arrived. Last year, the state borrowed $500 million for its pension plan. It used $200 million in federal aid to avoid cutting education and health care for the poor. And it used accounting maneuvers to make revenue appear higher and spending lower.
In other words, all the fearmongering about cuts to education and health care was a bunch of hyperbole and lies, which comes as no surprise to fiscal conservatives.
What a novel idea!
Wonder if Bush has ever thought of this?
The fiscal hangover is most extreme in California.
Tax collections are up 5.8% in the first seven months of the state's budget year. Spending is down 0.6%. Even so, the state ran a $6 billion deficit during that time, the legacy of a spending binge from 1999 through 2002 that reduced school class sizes and expanded health care.
California financed its deficits with short-term, credit-card style borrowing. On March 2, voters approved the largest state bond issue in U.S. history: $15 billion to spread the debt over 15 years.
But Republican Gov. Arnold Schwarzenegger and the Democratic-controlled Legislature still must find a way to plug a deficit running nearly $1 billion a month.
"We bought ourselves some time, but we still have spending commitments that cannot be paid for out of our revenue," says Bruce Cain, director of the Institute of Governmental Studies at the University of California-Berkeley.
While California struggles, states that dealt promptly with budget problems are moving forward.
In this case, Arnold is irrelevant as it is the democRATically-controlled whodug us this hole and now, no amount of special effects can cover that fact up.
Besides Arnold has more important things to do like appoint more commissions and help Gil Cedillo get SB60, Drivers Licenses for Illegals enacted with "urgency" and thus prevent the SOS Initiative and a referendum to stop this craziness from becoming law.
Revenues up... and they still keep spending into deficit oblivion.
Shameless bureaucrats.
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