Report: State budget shortfalls shrink

Most states expect to ride out fiscal 2004 with only one-tenth of the budget shortfalls they carried at this point last year, and 30 states report they should end the year with a modest surplus, according to a report released Thursday by the National Conference of States Legislatures.

At the same time, states are projecting a budget gap of more than $35 billion for fiscal 2005.

The Denver-based group's "State Budget Update: February 2004," a survey of state fiscal directors, showed an ebbing in the flow of red ink that states grappled with in 2003. States currently report only a $2.5 billion cumulative budget gap, compared with the $25.7 billion they reported one year ago.

"We remain guardedly optimistic about the financial future of the states," said NCSL President Marty Stephens. "The president and Congress deserve credit for helping states this fiscal year."

While many states did increase fees and tap rainy-day funds to fill budget gaps, they also benefited from federal action that provided $10 billion in relief for Medicaid expenses and $10 billion for other purposes.

The news, however, is not good for all states. California, Colorado, Connecticut, Hawaii, Indiana, Kentucky, Montana, Nebraska, Oregon and West Virginia have seen their fiscal health deteriorate since NCSL's last report in November.

On the other end of the spectrum, Delaware, Florida and Nevada said they would end the year with a surplus of 5 percent, with Wyoming topping the list at 14.3 percent.

"The outlook varies considerably by each state and the nature of its economy," said Bill Pound, NCSL's executive director. "There is still much uncertainty about the states' future fiscal picture."

States remain concerned about their fiscal 2005 budgets, however. More than half the states are facing another round of budget gaps. Although these shortfalls are less severe than past ones, they occur at a time when most states have depleted reserves, exhausted one-time funding sources and imposed repeated spending cuts, the NCSL said.

Of the $35.6 billion cumulative budget gap for the next fiscal year, California's $15 billion budget shortfall accounts for 42 percent of the projected amount.