"State legislators face a common problem around the country -- spending needs are outpacing projected budget levels, particularly in the area of Medicaid and health-care costs," said Bill Pound, executive director of the NCSL. "Because most states require a balanced budget each year, these gaps must be resolved by the time state officials close their books. 2003 certainly will be a year of tough policy decisions. "
NCSL's new report that received responses from state legislative fiscal offices from all 50 states found that states have at least a collective $17.5 billion budget gap to fill before fiscal year 2003 ends, which for most states is June 30.
This accounts for roughly 3.6 percent of original fiscal year 2003 appropriations. The total could rise as states gather additional information on revenue collections in the coming months.
Additionally, the budget landscape will be changed dramatically in nearly half of the states: Legislators in 24 states will be working with new governors, who often are responsible for drafting the working budgets the lawmakers start with. There also is a record number of turnover of state legislative seats, 24 percent, compared to an average of 18 percent in recent years.
The "State Budget Update" highlights the anemic fiscal condition of states through the early months of FY 2003.
- About two-thirds of the states, 33, report revenue collections below forecasted levels through October;
- 29 states have made revisions to their revenue estimates for FY 2003. In 26 of these states, the revenue forecast was lowered;
- 31 states report budget gaps in the early months of the current fiscal year;
- The $17.5 billion budget gap mostly has developed since the fiscal year began;
- 24 states report that Medicaid or health care programs -- which typically account for 15 percent of the average state's general fund expenditures -- are over budget for the early months of FY 2003;
- 29 states report that spending is exceeding budgeted levels and;
- The outlook for the remainder of the fiscal year is bleak, with 38 states concerned or pessimistic about revenue performance. Only 10 states report a stable or optimistic outlook -- Florida, Hawaii, New Mexico, North Dakota, Rhode Island, Tennessee, Utah, Washington, West Virginia and Wyoming.
To deal with budget gaps and revenue shortfalls, states may choose from a variety of cost containment measures, including tapping reserve funds, cutting programs, reducing Medicaid eligibility, making changes in personnel policies, delaying capital projects and implementing short- or long-term tax increases.
Last year, many states were able to use rainy day funds and other measures to address the $37 billion 2002 budget shortfall. Many states broke a trend of tax cuts that began in 1994 to balance last year's budgets-raising taxes by $9.1 billion in the aggregate. Eighteen states raised taxes by more than 1 percent, while Hawaii was the only state to cut taxes by more than 1 percent.
The National Conference of State Legislatures
