WASHINGTON States have prospered from the recent strong economic growth, but budget officers worry that long-term fiscal distress will return when the economy cools off, according to a report released yesterday.
"Most states are viewing the rapid growth of the final quarter of 1993 and the following quarters as a scenario that may not be sustainable in the future," said the report, based on a semiannual survey conducted by the National Association of State Budget Officers.
Lately, state revenues have exceeded expectations, general fund balances have grown, and small tax cuts have been enacted, the report noted. But state officials still fret about the longer term "pressures" of things like federal mandates, maintaining aging roads and bridges, and paying for schools and prisons, the report said.
"Fiscal 1994, with its expansion of the economy in most regions, helped restore short-term budget balance, but did not ease long-term pressures on spending and revenues," said the report, which was coproduced by the National Governors' Association.
Despite strong revenues recently, states have remained very conservative with their budgets after the lean years of the early 1990s. Last year, only 10 states were forced to make midyear budget cuts, compared with nearly half of all states in 1993 and seven out of 10 in 1992, the report said.
In relative terms, states don't plan to spend a lot more this year compared with last.
"General fund budgets for fiscal 1995 are estimated to be 4.9% above the previous fiscal year," the report said. "This spending increase is Well below the average of 8% during the 1980s."
State budgets look even more frugal when ever-growing Medicaid costs are considered. Last year, Medieaid accounted for 18% of state budgets, nearly double what it was seven years earlier, the report said.
Surprisingly, the proportion of state budgets spent on prisons, at about 3%, has not changed much in the last several years, the report said. But budget officers worry that "policies to build more prisons and to incarcerate prisoners for longer periods of time will affect state spending figures over the next decade."
The recent growth boom enabled states to cut taxes this year, resulting in the first legislated net decline in revenues since 1986, the report said. But the cuts were minimal in relation to recent tax increases, figures in the report showed.
Legislated state tax cuts for fiscal 1995 totaled $2.6 billion, compared with an average of $7.3 billion of tax increases during the previous five years, the report showed. "The overall percentage of tax cuts was less than 1% of state budgets," the report said.
In addition, the report said states in all regions of the country have benefited from the improving economy, but to different degrees.
The five fastest expanding states during the recovery were Idaho, Nevada, Utah, New Mexico, and Colorado, while the slowest growing were California, Rhede Island, Maine, Delaware, and Massachusetts, the report said. Rocky Mountain states tended to do the best and New England states tended to show the least improvement.
However, the gap seems to be narrowing, with growth in the strongest regions slowing some, while growth in the slower regions is picking up, the report noted.
"Although patterns of recovery in personal income differed greatly across the nation, the continuation of more stable economic growth nationwide is closing the gap," the report said.