According to a new budget survey, while growing revenues should allow U.S. states to increase their 2006 revenue surpluses by nearly 25 percent, to about $57 billion, that figure will shrink in the upcoming fiscal year -- which began for most states on July 1. The conference said that by year's end, the aggregate surplus would be reduced by nearly 30 percent, shrinking to about $40 billion -- much of that drop due to the uncertainty of tax collections.
For the 2007 fiscal year, the 49 states that responded to the National Conference of State Legislatures survey expected revenues to grow 3 percent above 2006, while they anticipated general fund expenditures will grow 7.6 percent.
The states that responded to the survey reported that their fiscal 2006 revenues grew 7.7 percent above fiscal 2005 levels, while spending grew 8.4 percent, including additions to "rainy day" fund balances, up 23 percent. State governments saved about $1 out of every $10 in their budgets in the 2006 fiscal year.
For the first time in six years, Medicaid spending is not expected to be the fastest growing budget category, the study found. The top spot has been taken by K-12 education costs, which are budgeted to grow 7.6 percent, followed by higher education and Medicaid at 6.3 percent each.
Legislative fiscal directors in many states worry that state spending will outpace ongoing revenue growth over the longer term, leading to structural deficits beginning as early as fiscal 2008, the report said. Only three states -- Nevada, New Hampshire and New Jersey -- reported a decrease in spending compared with the previous year. Thirty-nine states, meanwhile, boosted spending by at least 5 percent, with 16 of them spending at least 10 percent more than the previous year.
States generated $3.4 billion in new revenues from tax increases in fiscal 2006.Legislatures cut income taxes and corporate and business taxes, but they raised sales and tobacco taxes, health care taxes and motor vehicle and fuel taxes. Tax increases in fiscal 2007 are expected to drop to $1.4 billion based on actions taken so far in 2006 legislative sessions, the group said.
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