WASHINGTON - A new report on state budgets shows that state officials are acting in an unusually cautious way these days, says Brian Roherty, executive director of the National Association of State Budget Officers.
Even though most state budgets have recovered from the recession of 1990 and 1991, state officials are not rushing to fund major new programs or impose higher taxes to exploit stronger economic growth, according to Roherty.
"It's really unusual. This is the first time we've seen such restrained spending in the face of obvious recovery," Roherty said. "It's not what you'd expect from state governments."
Roherty, whose comments came after his group and the National Governors' Association last week released their biannual "Fiscal Survey of the States," said this is the first of such reports this decade to show that states are finally enjoying the full fruits of economic recovery.
"The outlook for state budgets for fiscal 1995 is the most favorable since the start of the national recession in 1990," the report says. "States are projecting budget stability, with mid-year revenue and budget shortfalls no longer posing a problem for the majority of states."
The report notes that some governors are proposing tax cuts and some states are increasing funding for some programs. But Roherty said those measures really are indicative of very cautious state officials who are working in modest ways around the edges of their budgets.
"They've just come out of a storm and they're not anxious to get the winds blowing again," Roherty said.
In the current fiscal year, which ends June 30, spending by the states is expected to rise by 5.1% and revenues are likely to expand by 2.4%, the report says. But next year, spending growth is expected to slow 3.1%, while revenue growth is expected to accelerate to 4.2%.
Despite the optimistic outlook, state officials remain wary because they got burned with overly optimistic revenue projections in the first few years of this decade and because they realize their budgets still face significant structural problems, Roherty said.
States' spending obligations for such services as health care still exceed their revenue estimates through the rest of this decade, according to Roherty.
"The fact that significant improvements in budgets are occurring in the third year of the national recovery points to a problem that is more structural than cyclical in state and local budgets," the report says.
Roherty noted that inflation in health care has slowed during the last several months, but that it still eats up most of the recent gains in state revenues.
States' spending on Medicaid is expected to grow by 8.2% in fiscal 1995, compared to an average annual growth rate of 21% during the previous four years, according to the report. States' yearend budgets, another indication of nagging structural problems, are expected to decline slightly next year despite stronger economic growth.
States' yearend balances, used by credit analysts as a measure of fiscal health, are expected to drop to 2.4% next year from an estimated 2.6% this year and 3.3% last year, the report says. This is still well above the recent low of 1.1% seen in 1991.
"Several states have instituted expenditure control procedures to avoid budget imbalances," the report notes.
For example, Oklahoma has a law stipulating that officials can only spend 95% of expected annual revenue. Rhode Island has a similar rule with a 98% cap.
