State Budget Gap Deepens to $58 Billion; More Than Half Of States' Revenues Falls Short Of Previous Year

7/24/2002

From: National Conference Of State Legislatures Press Room, 303-228-3813, Web site: http://www.ncsl.org

DENVER, July 24 -- State fiscal conditions continue to deteriorate dramatically according to a report released today at the 2002 Annual Meeting of the National Conference of State Legislatures (NCSL).

"State legislatures faced a number of very difficult decisions during fiscal year 2002," said NCSL President and New York Senator Stephen Saland. "Many states were forced to draw down their reserve balances, cut programs and even raise taxes. For many in the legislatures, it was unfamiliar territory."

In April, 43 states reported budget gaps totaling $27.3 billion collectively. By June 30, the end of the fiscal year for 46 states, the gap had risen to $35.9 billion. Budget gap estimates for FY 2003 show an increase to $57.9 billion. However, because of balanced budget requirements, gaps have been or will be resolved by the time states officially close their books.

2002 State Budget and Tax Actions showed widespread fiscal problems:

-- 12 states reported FY 2002 budget gaps in excess of 10 percent of their general fund;

-- State ending balances fell nearly 42 percent from FY 2001 to FY 2002 -- from $31.5 billion to $18.4 billion;

-- Aggregate rainy day fund balances have fallen from $16.5 billion in FY 2001 to $10.8 billion at the end of FY 2002;

-- 26 states collected less revenue in FY 2002 than they did in the previous year;

-- 29 states implemented targeted or across-the-board cuts; and

-- 19 states tapped rainy day funds.

Also significant for FY 2002, states raised taxes by $6.7 billion in the aggregate -- breaking a trend of tax cuts that began in 1994. Only one state cut taxes by more than 1 percent (Hawaii) while 16 states raised taxes by more than 1 percent.

"While many may be breathing a sigh of relief that fiscal 2002 is over, our data suggests there isn't much time to catch their breath," said NCSL Executive Director William Pound. "Fiscal 2003 is shaping up to be even more of a challenge than 2002. Though many legislatures have already addressed their fiscal 2003 budget gaps, budget cuts, tax increases and rainy day funds are not out of the question."

Estimates for FY 2003 show that the aggregate budget gap will continue to widen to $57.9 billion. California's budget gap of $23.7 billion accounts for more than 40 percent. Thirteen states are reporting gaps in excess of 10 percent of their state general fund budgets. Twenty-five states expect their general fund ending balances to fall from FY 2002 levels while only 11 expect an improvement.

Copies of 2002 State Budget and Tax Actions are free to bona-fide news organizations. To obtain a copy, send an e-mail to press-room@ncsl.org.

The National Conference of State Legislatures is the bipartisan organization that serves the legislators and staffs of the states, commonwealths and territories.

NCSL provides research, technical assistance and opportunities for policymakers to exchange ideas on the most pressing state issues and is an effective and respected advocate for the interests of the states in the American federal system.