The dozens of Utah legislators meeting this week with their counterparts from across the nation in Louisville, Ky., have a lot to be thankful for – Utah is in better fiscal shape than most other states.
But all is still not well, either here or across the nation.
A new report by the National Conference of State Legislatures shows that, in total, states are facing an $83.9 billion revenue shortfall in fiscal 2011, which started July 1.
Most state legislatures have raised taxes – as well as severely cutting budgets – in an effort to make up those huge budget gaps.
The 2010 Utah Legislature raised the state cigarette tax by $1 per pack, using the estimated nearly $45 million to help plugs financial gaps here.
But those extra tax revenues will basically be wiped out: A new Utah Tax Commission revenue report shows that Utah’s 2010 budget (which ended June 30) could be short by an additional $57 million.
Technically, that one-time shortfall will be made up from the state’s Rainy Day Fund. But the shortfall must also be estimated through the new budget year, resulting in state coffers starting in that much of a financial hole.
And that means that Utah politicians, lobbyists and state program advocates will face another difficult budget-setting process come January’s general session.
NCSL economists say their new report on all state budgets shows most states have been raising taxes for nine consecutive years. And that the current economic troubles will last at least another two years. Only then can most states count on tax revenues rebounding significantly.
“State lawmakers are going to need extra stamina to push through this next round of budget challenges,” says William Pound, executive director of NCSL, in a press release. “It will be a long march before state revenues return to their pre-recession levels, not to mention other hurdles lawmakers have to clear.”
Utah Senate Budget chairman Lyle Hillyard, R-Logan, recently told UtahPolicy that the state’s new TC23 revenue report that details the $57 million shortfall at fiscal year’s end also shakes confidence in the early 2011 tax revenue forecasts, used in adopting a balanced budget for the current fiscal year, which ends June 30, 2011.
Gov. Gary Herbert will update his current year’s spending plan, and propose a balanced budget for next fiscal year, in early December.
The 2011 Legislature starts its 45-day session Jan. 24. And if the new NCSL report ends up reflecting Utah’s immediate financial picture – as well as other states’ – it will be another tough budget year.
Pound said in many cases, state officials report revenues will pick up or, at the very least, slow their rate of decline this year. He said 2011 tax revenues are expected to surpass 2010 tax collections.
“But this does not mean states are in the clear. They are concerned about revenue growth being insufficient to replace the loss of federal stimulus funds,” said Pound.
“For the first time in a long time we’re seeing some slight improvement in the state revenue situation,” said Corina Eckl, NCSL’s fiscal program director. “But glimmers of improvement are tarnished by looming problems.”
Chief among those is the end of the federal government’s economic stimulus money.
In the 2009 Legislature a number of lawmakers complained loudly about Congress’s spending, but still took tens of millions of federal dollars to help balance out the fiscal 2010 budget (the one that just ended.)
The NCSL report goes on to say: “States are in a tenuous fiscal position, teetering between delicate revenue improvement and the end of the federal stimulus funds,” says Eckl. “If Congress decides not to extend enhanced (Medicaid enhancement funding) rates for six months, it will be another blow to the states’ fragile fiscal recovery.”
Without the extension of (Medicaid matching) money, states will face a new budget gap in excess of $12 billion. The potential gaps range from $1.5 billion in California to $9 million in Vermont. Twenty-one states project gaps in excess of $100 million, with several above $500 million. Texas, North Carolina and New York join California with potential new gaps above $1 billion.
Two-thirds of the states already forecast another round of double digit budget gap in fiscal 2011-2012. Thirty-three states forecast gaps in fiscal 2012. Although most states do not have budget forecasts extending to fiscal 2013, nearly half do. So far, 23 states project budget gaps for fiscal 2013.