WASHINGTON -- Burgeoning spending by most states on Medicaid and prisons is soaking up more and more funds that otherwise would go to other programs, such as higher education, says a report released yesterday by the National Conference of State Legislatures.

"The most important information from state budgets for fiscal 1994 is the way Medicaid and corrections are crowding out funding for higher education." says the report, entitled "State Budget and Tax Actions 1993."

Based on complete budgetary information from 38 states, the report is a preliminary version of a final report that will be released in the fall. The final report details actions taken in fiscal 1993 and the expected effects in 1994, according to the legislators' group.

Fiscal 1993, which ended on June 30 for most states, marks the first year on record that states spent more on Medicaid than on higher education, the report says. And in fiscal 1994, states expect to dole out 24% more for Medicaid than for higher education, according to the report.

In general, Medicaid spending advanced by a whopping 17.6% in fiscal 1993 and is expected to increase by 7.5% in fiscal 1994, according to the report. "But that number should be regarded as a minimum growth rate, not a realistic forecast, if past events are an accurate guide to the future," the report says.

In addition, fiscal 1994 is the third straight year that states on average will increase their funding for prisons by more than they raise it for higher education, the report says. "Spending on corrections grew by 6.9% in fiscal 1993 and will grow by 10.8% in fiscal 1994," the report says.

"These developments dramatize long-term trends in state finance," the report says. "They are not isolated or erratic events."

Notably, states anticipate increasing their funding of the Aid to Families with Dependent Children program by 2.3% in fiscal 1994, which is below the inflation rate, the report says. This increase will offset the 2.2% cut in spending in fiscal 1993, the report notes.

In general, states expect slower revenue growth in fiscal 1994 than in the previous year, the report says. States on average anticipate a 2.8% gain in their general fund collections, compared with a 4.8% advance in the previous year, according to the report.

"This rate of growth includes tax increases, and also includes the forecasts of the states that expect revenues to fall," the report says. Net tax hikes enacted in 1993 are expected to increase state revenues by 1.2%, or $3.8 billion, in 1994, the report says. These taxes include the extension of temporary taxes and the postponement of scheduled tax reductions, the report notes.

Specifically, states in fiscal 1994 expect to take in an additional $1.25 billion from higher personal income taxes, $370.1 million from higher corporate income taxes, and $I.2 billion from expanded sales and use taxes, the report says.

On the other side of the balance sheet, states generally expect growth in their general fund expenditures to fall slightly short of last year's pace, the report says. States on average anticipate a 4.2% increase in general fund spending in fiscal 1994, compared with the 4.6% gain in fiscal 1993, according to the report.

The authors acknowledged, however, that the draconian measures taken in California to balance the budget skewed somewhat the results of the overall report. California employed "virtually every deficit-closing device any state has ever used" to balance its budget in fiscal 1993, the report says. General fund expenditures were cut by 6.3%, including an 8% cut in higher education spending and a 15.6% cut in spending on primary and secondary education, according to the report.

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