‘Glimmers of improvement,’ but US state woes remain

* Revenue growing in most states

* States started fiscal 2011 with budget gaps of $83.9 bln

* More than half states foresee shortfalls in fiscal 2012

By Lisa Lambert

WASHINGTON, July 27 (BestGrowthStock) – State tax revenue is
improving, but only slightly, and may not be enough to end
steep spending cuts or replace the loss of assistance from the
federal stimulus plan that expires in December, according to a
report on Tuesday.

The National Conference of State Legislatures said states
faced a collective budget gap of $83.9 billion when creating
their budgets for fiscal 2011, which for most began on July 1.

Officials surveyed by the group, which represents state
lawmakers, said revenue was beginning to pick up or at least
slow its rate of decline. Nearly every state expects tax
collections this fiscal year to surpass last year’s.

“For the first time in a long time we’re seeing some slight
improvement in the state revenue situation,” Corina Eckl, the
NCSL’s fiscal program director, said in a statement
accompanying the report. “But glimmers of improvement are
tarnished by looming problems.”

Already, 33 states are forecasting budget gaps for fiscal
2012 and 23 anticipate shortfalls for fiscal 2013, highlighting
the fragile state of their finances. Last year’s collapse in
state revenue — one of the largest on record– has shaken all
parts of the U.S. economy.

Investors in the U.S. municipal bond market wonder about
the future of debt issuance as state deficits swell.

Public employees see threats to their livelihoods and
pensions as governments turn to layoffs. Citizens worry how the
revenue crash will affect spending on schools and other
services, and whether their tax bills will rise.

There are also concerns states will lead the country into a
“double dip” recession. All except Vermont are required by law
to balance their budgets.

Last week, Federal Reserve Chairman Ben Bernanke said state
and local government budgets are reducing the speed of the
recovery from the economic recession that began in 2007. He
warned that in order to balance budgets, those governments
would likely cut “several hundred thousand jobs.”

White House Chair of the Council of Economic Advisers
Christina Romer has said state budget shortfalls will be equal
to about 1 percent of the country’s gross domestic product.

The Center on Budget and Policy Priorities, a think tank
that tracks state economic conditions, said earlier this month
the recession had caused the steepest decline in state tax
receipts on record and that more than 30 states raised taxes.

At least 46 states started fiscal 2011 addressing a
shortfall. The Center estimated budget gaps for the fiscal year
will total $121 billion, 44 percent higher than the forecast
from the state legislatures.

The U.S. Census has also found state revenue is picking up,
with state and local government tax revenue rising 0.82 percent
in the first quarter of 2010. The Rockefeller Institute of
Government, a New York-based research group, recently said
overall state tax revenue rose 2.5 percent in the first
quarter.

Still, those increases are not enough to push revenue back
to pre-recession levels, the NCSL found.

“State lawmakers are going to need extra stamina to push
through this next round of budget challenges,” said William
Pound, executive director of the NCSL. “It will be a long march
before state revenues return to their pre-recession levels, not
to mention other hurdles lawmakers have to clear.”

The economic stimulus plan passed last year included the
largest transfer of funds from the U.S. government to states,
at $135 billion, but the aid runs out in less than six months.

Measures in Congress to extend some of that aid have
stalled over fiscal conservatives’ concerns about the deficit.
Without the extension of Medicaid money, states will face new
budget shortfalls topping $10 billion, the NCSL found.

Medicaid is the healthcare program for the poor, jointly
administered by states and the U.S. government, which takes up
20 percent of state budgets. The stimulus boosted federal
reimbursements for the program, freeing up money for other
programs.

At least 25 states will have new budget gaps if the
enhanced reimbursements are not continued for another six
months, according to the NCSL, with 21 of those gaps greater
than $100 million. Texas, North Carolina, New York and
California risk having budget shortfalls of more than $1
billion.
Investment

(Reporting by Lisa Lambert; Editing by Dan Grebler)

‘Glimmers of improvement,’ but US state woes remain