Booming economies allow states to save cash

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NASHVILLE, Tenn. (AP) -- State lawmakers are saving lots of money for a rainy day because of booming economies and conservative economic forecasts, a report says.

State governments saved about $1 out of every $10 in their budgets in the most recent fiscal year, according to a survey released yesterday at the annual meeting of the National Conference of State Legislatures.

The $57 billion total saved by legislatures across the country marks a 25 percent jump from the previous budget year and is one of the highest levels in decades.

The study credits conservative forecasting for the year-end balances, which are considered a top indicator of states' fiscal health.

Cumulative revenues were projected to grow by 2.7 percent for the last budget year, but they ended up growing by 7.7 percent, nearly three times higher than expected.

State revenue forecasts are often imprecise because they are made up to 18 months in advance, the report said.

Twenty-eight states' year-end balances increased over the 2004-2005 budget year, 19 states' balances declined and two experienced no change. No state ended with a deficit, though Arkansas was expected to end with a zero balance.

Nearly half the states' surpluses went into rainy day and other reserve funds:

• Florida left $1.6 billion in its General Revenue Fund Reserve.

• Maryland increased its rainy day fund by $593 million, Connecticut added $440 million, Georgia planned to add $430 million and Virginia prepaid deposits for future years. Tennessee added $172 million.

• Alaska put $300 million into its Public Education Fund while placing another $300 million in a new reserve fund.

• Wyoming sent $200 million to its Permanent Mineral Trust Fund, and New Mexico placed $40 million into its Water Trust Fund.

Only three states -- Nevada, New Hampshire and New Jersey -- reported a decrease in spending compared with the previous year.

Thirty-nine states, meanwhile, boosted spending by at least 5 percent, with 16 of them spending at least 10 percent more than the previous year.

The report finds that even in good economic times, state legislatures are reluctant to boost revenue projections.

Forecasters cite the unpredictability of income tax collections as a reason for a 29 percent decrease in the expected balances at the end of the current budget year -- including a 14 percent drop in rainy day fund balances.

The expected decreases in year-end balances come as states have budgeted a 7.6 percent increase of their general fund spending levels. Louisiana, New Mexico and Oregon are the only states planning to spend less this year than last year.

For the first time in six years, Medicaid spending is not expected to be the fastest-growing budget category. The top spot has been taken by primary and secondary education, which is budgeted to grow 7.6 percent, followed by higher education and Medicaid at 6.3 percent each. Corrections spending is slated to grow by 5.7 percent.