Washington (Dec. 4, 2002) -- States face the worst fiscal situation since World War II, according to a report from the National Governors Association and the National Association of State Budget Officers.

The associations' biannual report found that despite significantly cutting state spending, 37 states were forced to reduce their enacted budgets by about $12.8 billion in fiscal 2002. About midway through the current fiscal year, 23 states plan to reduce their net enacted budgets by more than $8.3 billion.

NGA executive director Raymond C. Scheppach blamed the situation on a convergence of four factors. "The combination of long-run deterioration in state tax systems coupled with an explosion of health care costs are creating an imbalance between revenue and spending," he said. "To make matters worse we've had a collapse of capital gains tax revenues added to the overall loss of revenue attributable to slow economic growth."

The NGA said it supports legislation to help relieve states' budget pressure. Legislation originally passed by the Senate in July was scaled back and included in the Medicare-giveback bill that was negotiated by Senators Charles Grassley, R-Iowa and Senator Max Baucus, D-Mont., but was never reported out of the Finance Committee. "The fiscal relief package is an effective means of minimizing Medicaid cuts and wuld help offset the negative impacts of state budget cuts on the overall economy," Scheppach noted.

-- Electronic Accountant Newswire staff

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