Road to recovery: Don't expect halcyon days of late 1990s

If you had asked him six months ago how states were doing, Scott Pattison would have said that nearly every state was having severe budget problems. That's no longer the case. Some states are recovering from the budget shortfalls that have dogged them for three years, said Pattison, executive director of the National Association of State Budget Officers and a former budget director of Virginia.But states aren't out of the woods yet. According to the semiannual "Fiscal Survey of the States," released jointly last month by the Washington-based National Governors Association and NASBO, states can expect the tough fiscal times to continue for the rest of fiscal 2004 and perhaps into fiscal 2005.Pattison spoke with Staff Writer William Welsh about the states' budget woes and whether contractors can expect to see an upturn in spending. What are the signs that state budgets may be bouncing back? Small and medium states are seeing improvement. According to our latest survey, 21 states have negative spending in fiscal 2003, so they were spending less than in fiscal 2002, which is unusual and very significant. But for fiscal 2004, we are seeing only about 13 states [with negative spending], so that indicates some improvement. What lessons have states learned from the ballooning deficits? That revenues can be very volatile. States need to structure their finances carefully so that they are prepared for possible wild swings in revenue. What are the last programs that states cut in hard fiscal times? States have avoided cutting K-12 education to the greatest degree possible. That [area] seems to be the most sacrosanct and the highest priority. We've estimated 26 states exempted K-12 education from cuts... Because Medicaid tends to be an entitlement, has less discretionary spending and [its funding] is matched by the federal government, it [is another area that avoids] deep cuts. Pretty much all other areas of state government have been hit hard. Has the federal government given states an appreciable amount of aid? Last year the federal government did provide $20 billion in fiscal aid ? $10 billion generally and $10 billion through Medicaid. The states are extremely grateful for that; it came at the correct time. However, the problems for the states are the fairly significant mandates that we don't expect to be fully funded. Those come in "No Child Left Behind," election reform and homeland security. Not that the federal government hasn't provided funds in those areas, but ... we don't expect sufficient funding over the next few years for full implementation. Where can effective IT use help states cut spending? I encourage the IT sector to think creatively and to be aware that policymakers in state and local governments realize that technology is something they can benefit from [in terms of] improving efficiency and saving money. But it's less likely that state and local governments will have upfront, large amounts of cash to appropriate for a big system. What we're going to have to see is partnerships between business and governments and some creative thinking on how [they] can be financed over time. When can contractors expect to see an increase in spending?You can expect a gradual increase in IT funding. One caveat to remember is this will be slow, steady improvement, because states have other claims on their spending, especially as we've had three straight years of cuts to many programs. No one should expect the halcyon days of the late 1990s.