States Weigh Whether to Save or Spend Surpluses

Good times are rolling in statehouses across the US, as the strong economy yields budget windfalls that are even bigger than expected

Funny how a budget surplus can raise tensions down at the statehouse.

Here in the hallowed halls under the Massachusetts dome, phones ring off the hook with requests for state spending. House and Senate leaders have stopped speaking to each other, and talks over what to do with the bounty are stalled.

Clearly there's something different about governing in times of plenty - a lesson lawmakers in at least half the states are learning as they face the decision of whether to spend or save.

"It's harder," laughs Sen. Stanley Rosenberg (D), chairman of the Massachusetts Senate Ways and Means Committee. "If people know there's no money, they know there's no money. But if there's a little money, you get this intensive lobbying ... and it's more difficult to say no."

Across the country, an economic boom has pushed the gloomy talk of budget shortfalls out of capitol hallways and off the front pages. State budgets are not only in balance, but lawmakers have more money than they know what to do with. Not since 1980 have so many states been so flush, according to budget trackers.

Each state is managing the largess in its own way:

* In Texas, where the state budget surplus has reached $1 billion, taxpayers can expect a cut in property taxes and teachers can expect a 6.5 percent pay raise.

* In California, taxpayers will likely see a $2.3 billion surplus spent on everything from aging highways and schools to relief for bankrupt cities and counties.

* In Connecticut, motorists are rallying behind a proposed cut in the nation's highest gasoline taxes.

* In Alaska, where tax revenues this year are 104 percent larger than the entire state budget, citizens can expect a whopping check in the mail.

For many states, "it's pay-back time," says Arturo Perez, a policy specialist at the National Conference of State Legislatures in Denver. All those "nonessential" annual expenses, such as potholes and pay raises, have suddenly become top priorities again.

But lawmakers aren't exactly paving their districts with pork. In fact, state budgets this year seem remarkably fat-free, and lawmakers seem to be governed more by a sense of prudence than by the free-spending spirit of the 1980s.

"Last year many states treated their surpluses like a rainy-day fund," says Mr. Perez. With Congress talking about handing more responsibility for welfare and Medicaid to the states, many lawmakers prefer to hoard their windfalls.

Last year, states squirreled away a total $20 billion in reserve funds. Twenty-four states had more than 5 percent of their budgets in some form of reserve. This year, state revenue projections are all running much higher than expected.

In California, a steady economic recovery has meant $2.3 billion more tax dollars than planned this year. But a recent court decision, requiring California to pay back billions of dollars in loans from state pension funds, could leave the Golden State with very little gold on hand.

"It feels good being able to return some property taxes and shift some money back to counties and cities," says state Rep. Denise Moreno-Ducheny (D), head of the Assembly's budget committee. But even with the surplus, "it's hardly back to where we were. There are a lot of needs that have gone unmet for five to six years."

Billion-dollar surpluses are a drop in the bucket for a state the size of California, she adds, noting it will be a struggle to set aside 1 percent of the $52.8 billion budget for a rainy-day fund. "Just having a reserve would be nice," she laughs.

In Massachusetts, $300 million in extra revenues has become the source of some unusual tension. Budget negotiations are in deadlock, even though the spending plans of the Democratic-led House and Senate are virtually identical. Both would put money toward capital expenses, such as repairing courthouses and filling potholes, and both would help pay off debt from bonds. But the devil is in the decimal points.

As year-end school tours swarm the Beacon Hill capitol, lawmakers here say most colleagues know they can't fund long-term spending with short-term windfalls.

"Overall, the feeling is we should stay the course and avoid the mistakes of the 1980s," says Senator Rosenberg. "In society, personal behavior is more restrained, and that's being reflected here too."

Some long-timers say the culture of the statehouse has changed dramatically in recent years.

"The days of pork-barrel spending are kind of gone," says Henry Walsh, a staff director for Rep. Paul Haley (D), head of the House budget committee. "One reason that has changed is we have more women lawmakers. They're more apt to look at every detail. Which is good. Keeps you on your toes."

With all this talk of prudence in the Democratic camp, the Bay State would seem to be in danger of losing its nickname of "Taxachusetts." But lawmakers have been reluctant to take the step of actually cutting taxes.

Tax cuts can hobble a state government in future bad times, says former state Gov. Michael Dukakis, a onetime Democratic presidential candidate. "If, God forbid, there's another downturn, we'd have the exact same problems we had in the late 1980s."

"Whenever we can, we ought to offer tax relief to businesses and taxpayers," counters state Treasurer Joseph Malone (R), who is launching a bid for governor this year. "Massachusetts still faces issue of affordability."

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