Many states celebrate surpluses as Congress struggles with debt

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As Washington stares at rising national debt and projected deficits for years to come, many states are faced with the opposite problem: whether to spend their budget surpluses and, if so, on what.

At least a dozen states ended fiscal 2011 with surpluses. Indiana reported one of the largest, with an extra $1.2 billion in its accounts. Gov. Mitch Daniels, a Republican, on Friday authorized bonus payments of up to $1,000 for state employees. An employee who “meets expectations” will get $500, those who “exceed expectations” will receive $750 and “outstanding workers” will see an extra $1,000 in their August paychecks.

“No state anywhere comes close to Indiana’s record of spending tax dollars carefully, with total savings over the last six years in the billions. Your spending efficiency has enabled us to stay in the black even as revenues plummeted,” said Mr. Daniels, who recently flirted with a run for the White House but ultimately stayed out of the race.

While Indiana decided to reward its employees, other states are redirecting surplus funds into cash-strapped areas such as education. Idaho ended the year with an $85 million surplus, the majority of which will be funneled to public schools and colleges, Gov. C.L. “Butch” Otter, a Republican, said in a statement last week.

Other states are bulking up their savings accounts. Maine finished the year with a surplus of nearly $50 million. About half will go to the state’s reserve, the Bangor Daily News reported. Iowa closed its books with $480 million left over, on top of an already healthy “rainy day fund.”

Ohio Gov. John Kasich, a Republican, on Sunday touted the fact that since taking office in January, he has helped the Buckeye State turn its deficit into a surplus.

“In my state, where we faced an $8 billion deficit, we wiped it out. We eliminated it,” he said on “Meet the Press.”

“We’ve been able to cut taxes, improve [and] reform government. And you know why? We looked [the fiscal problems] square in the eye. … That is what they’re not doing here in D.C. right now.”

Arkansas, South Carolina and other states also ended their fiscal terms firmly in the black. During the depths of the recession a few years ago, states emptied reserve accounts or raised taxes to make ends meet. Unlike Washington, nearly all states are required by law to balance their budgets each year. Only Vermont lacks such a requirement, according to the National Conference of State Legislatures.

The biggest drivers of surpluses are higher-than-expected tax collections. Thirteen states have reported revenue higher than anticipated, according to the National Association of State Budget Officers. Only two states reported less tax revenue than expected, and another 31 states were on target. Four states have not finished the 2011 budget cycle.

Last year, 46 states reported revenue at lower-than-expected rates, and the tax turnaround is, to some, an indication that the economy has begun to turn around.

“But the thing we’re stressing is … they’re still not back to the levels they were before the recession,” said Brian Sigritz, director of state fiscal studies at the budget officers association.

Spending reductions also played a big role. Many states made major cuts to education and other parts of their budgets. Even with better-than-expected tax revenue, those cuts were still necessary, partly because federal stimulus dollars, which propped up many state budgets over the past two years, have been fully expended.

Despite ending the fiscal year on a high note, governors are aware of how quickly the rosy financial picture can change. They are cautioning taxpayers and lawmakers that a little extra cash doesn’t mean the state should embark on a spending spree.

“I’m grateful for the revenue growth. But I still think that we’re a long way from out of the woods,” Mr. Otter of Idaho said in his statement “You need to remember that this is about half a billion dollars less than we had in my first year as governor. So we’re going to keep working hard.”

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