State spending seen increasing despite nationwide fiscal crisis

Most state spending is expected to rise in the coming fiscal year, even though governors claim budget deficits have forced them to cut expenditures to the bone.

Governors and state legislative leaders repeatedly have complained that they are undergoing a fiscal crisis forcing them to make deep, across-the-board cuts in spending because of a weakened economy that has sharply reduced state-tax revenues.

But the Fiscal Survey of States released at the end of last month by the National Governors Association shows that tax revenues are expected to rise in the aggregate by nearly 3 percent, say budget analysts who have been studying the NGA’s recent data.

State revenues, which totaled nearly $470 billion in fiscal 2003, are expected to rise to $482 billion in the 2004 fiscal year. “That is a 2.6 percent increase in tax revenues,” said Chris Edwards, director of fiscal policy for the Cato Institute.

The NGA data also show that contrary to continued claims that states’ spending is being slashed as never before, expenditures will actually climb modestly in the aggregate when California is removed from the equation.

The NGA survey shows that proposed spending remained essentially flat between fiscal 2003 and 2004 at $482 billion, but budget analysts say that this state-spending figure is distorted and skewed by California, which will have to cut spending deeply to offset a looming $38 billion deficit.

“Some states are cutting spending, but NGA data show that for the 49 states other than troubled California, spending will still rise by more than 2 percent in the 2004 fiscal year,” Mr. Edwards said.

But this is not the fiscal picture painted by newspaper and nightly television news reports on the states’ budget problems.

The Washington Post, for example, reported recently that “budget cuts and layoffs this year produced the deepest state-spending reductions in dollar terms since the governors began their fiscal survey.”

The NGA also has fed much of the impression that a majority of governors across the country were raising major taxes, and that expenditures were either barely growing or were expected to decline in the 2004 fiscal year.

“Governors in 29 states recommended tax and fee increases in fiscal 2004,” the NGA said in its latest fiscal scorecard. “Further, state spending growth was cut to only 0.3 percent in fiscal 2003 and is expected to decline 0.1 percent in fiscal 2004.”

Interviews with budget analysts last week painted a different picture. Most governors were not raising major, broad-based taxes on income, retail sales and property, they said. Instead, most were proposing or had enacted smaller “sin taxes” on alcohol, tobacco and gambling, and sales taxes on hotels, rental cars and a range of fee increases for state services.

With the exception of two megastates, California and New York — which account for about 18 percent of the population — “the rest of the picture isn’t so bad. Actually, the governors on balance have done a very good job of dealing with this budget mess,” said budget analyst Stephen Moore of the Club for Growth. Mr. Moore publishes an annual score card on how the states are handling taxes and spending.

“Actually, 12 states have raised major taxes this year on incomes, retail sales or property. That’s not many given the fact that this is the worst fiscal crisis in the states since 1980,” Mr. Moore said.

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