Strong economic conditions for state governments are giving way to troubling budget shortfalls as rising health-care costs and the housing crisis put pressure on both revenue and spending, a new report says.
States already are spending less in the current budget year than in fiscal 2007, which for most states ended in June, according to the analysis by the National Governors Association and the National Association of State Budget Officers released Wednesday.
A few states are also talking about tapping their rainy-day funds to address budget shortfalls caused by lower-than-anticipated revenues in fiscal 2007. States' total reserves — a combination of year-end balances and rainy-day funds — remain healthy but are also starting to decline, the report says.
Scott Pattison, the budget officers' executive director, used a sports analogy to describe the downturn states were facing.
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In the past couple of years, states were so well-off they "would have no problem running the Marine Corps Marathon," he said Wednesday.
"Now we're starting to see some sluggish growth," Pattison said. "They can do a walk-run of a 10K, but (they're) not necessarily at the peak where they could run a marathon."
Several states have announced budget shortfalls since the report was completed earlier this fall, said Ray Scheppach, the governors' executive director.
If conditions worsen, states need to be prepared for an economic downturn that could hit them hard, Pattison added.
The survey of states' financial condition in fiscal 2007 found:
● Only one state, Wisconsin, had to make a midyear budget cut in the fiscal year that ended, in all but four states, in June.
● State general-fund spending grew by 9.3 percent in fiscal 2007, significantly higher than the 30-year average of 6.4 percent, as states used surpluses to cover tax cuts and bolster previously underfunded programs.
● States budgeted more modest revenue growth in fiscal 2008, with seven states enacting negative growth budgets.
Spending on health care is rising again after a relative lull, and the housing market is also hurting revenues as states lose taxes from real-estate-driven, big-ticket sales, Scheppach said.
