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US States Report Strong Revenue Growth

by Mike Godfrey,, Washington

15 December 2006

US states' fiscal conditions continued to improve in fiscal 2006, according to the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO).

In a report released on Wednesday entitled 'The Fiscal Survey of States,' NGA and NASBO found increased revenues and strong budget reserves, which enabled states to offer tax cuts, increase funding for programs and replenish budget stabilization funds.

"It is a good time to be governor," commented NGA executive director Raymond C. Scheppach.

"The stable, healthy fiscal condition of states across the nation affords current governors options their predecessors did not experience. Governors are better-positioned to prepare their states for long-term spending pressures from structural deficits in Medicaid and rising health care costs," he added.

The report stated that state general fund spending grew by 8.7% in fiscal 2006 - significantly higher than the 29-year average of 6.4%. In fiscal 2006, only two states made mid-year budget cuts. Three states reported negative budget growth for fiscal 2006, and four states enacted negative growth budgets for fiscal 2007. However, this is in sharp contrast to fiscal 2003 when 21 states enacted negative growth budgets.

"States have now effectively rebuilt their rainy day funds and spending is somewhat above average so that states have provided some limited tax cuts as well as bolstered programs that had previously been cut during the lean years. The question state finance officials are asking is whether the state fiscal situation is peaking for this cycle," noted NASBO executive director Scott D. Pattison.

States enacted net tax and fee decreases of $2.1 billion in fiscal 2007. Twenty-four states adopted net decreases, while 15 enacted net increases. Continuing the trend of recent years, the largest enacted net decrease was in personal income taxes, and the largest net enacted increase was in sales taxes.

Revenues, which exceeded expectations in 46 states and were on target in four states during fiscal 2006, were 5.9% higher overall than originally estimated. Sales taxes were 2.3% higher, personal income taxes were 6.6% higher and corporate income taxes were 20.5% greater.

However, states have budgeted for more moderate revenue growth in their fiscal 2007 budgets. Compared to actual fiscal 2006 collections, enacted fiscal 2007 budgets reflect 3.5% more in sales tax revenue, 4.0% more in personal income taxes and 4.0% less in corporate income tax revenue - a 3.0% overall increase from fiscal 2006.

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