States' bottom line improves, but can the good news last?
States' 2011 budgets are heading in the right direction as tax revenue increases, new indicators report. But with federal support waning and local demand on programs like Medicaid up, will the good news last?
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Indeed, the federal government is speaking only of cutting these days, making state budget officers nervous, because expenses for programs like Medicaid are going up. Arkansas, for instance, is looking at a 2011 surplus of $95 million thanks to federal stimulus. But looking forward, its Medicaid shortfalls alone are expected to reach $80 million in the next two years, says Brandon Sharp, administrator for the state Office of Budget.
States are also looking warily at their own local governments, which may need help because they are not seeing the same fiscal growth. Property taxes in many places are actually declining because of the bad housing market.
"The net effect here is that we are not really treating it like a surplus at all," says Jon Hanian, press secretary for Idaho Gov. C.L. "Butch" Otter, of what he calls the "$85 million surprise" on their budget of $2.3 billion.
"It is crucial to keep in mind that states are just beginning to emerge from a deep fiscal hole, and that recovery will be a slow process," says a June 17 CBPP report. "The economy remains weak, unemployment is still high, and state fiscal recovery tends to lag behind recovery in the broader economy."
For Indiana, however, a $1.2 billion surplus – roughly 9 percent of its budget – is more than a statistical anomaly. It is vindication for a budgetary discipline that preceded the recession, says Adam Horst, director of the Indiana State Budget Agency. He says state revenues exceeded their latest forecast by $204 million, and state agencies saved $181 million more than they had projected.
Most Indiana agencies have cut their budgets by about 25 percent since 2008. One result is that the number of full-time state employees is now below the 1976 level. Meanwhile, agency performance, which is measured and reported regularly, remains at some of the highest levels the state has ever seen, Mr. Horst says.
"While other states claim balanced budgets after delaying payments to schools and providers, skipping pension payments, or taking on additional debt, Indiana has an honestly balanced budget where annual revenues exceed annual expenditures, bills are paid on a timely basis, and pension obligations have been fully met," Horst adds.
Others agree that there can be "really good news" from the states' budget crises. "We need a real conversation about what kind of government we want and what scale of government we can afford," says Steven Beschloss, coauthor of "Adrift: Charting Our Course Back to a Great Nation." "And it's going to take smart, strategic thinking about what programs are most important and how states can spend their resources more wisely."
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