U.S. States Expect Tax Revenue to Rise After Shrinking $84 Billion in Gaps

U.S. state governments project revenue will climb in the current fiscal year after they raised taxes and cut spending to close budget gaps of $84 billion, a report from the National Conference of State Legislatures found.

Revenue will increase 3.7 percent, after falling 1.5 percent in fiscal 2010. Even so, deficits of more than $12 billion may open for at least 29 states should Congress fail to extend extra aid, while two-thirds already forecast fiscal 2012 gaps of $72 billion, according to the conference’s survey.

“While many states appear to be in a more stable situation -- the revenue freefall has abated -- they are far from clearing the hurdles wrought by the recession,” the Washington-based group said in the report released today. “The revenue chasm was so deep that climbing out of it is going to take some time.”

States are beginning to emerge from the fiscal crisis brought on by the recession in 2007, which sent the national unemployment rate above 10 percent last year and cut into the taxes they use to pay for schools, public safety and other government programs.

While the economy has been expanding and businesses have begun adding jobs, tax collections have yet to fully rebound. According to the U.S. Census, states collected $691 billion of taxes in the 12 months through the end of March, roughly the same pace as in 2006.

Medicaid Aid

Governors are pressing Congress to extend the additional funding for Medicaid, the state-run health care plan for the poor, that they received under the economic stimulus legislation passed last year. That aid is set to lapse at year-end, which would force states that anticipated receiving it, including California and New York, to make deeper spending cuts to close that gap.

While the House of Representatives has moved to approve such aid, the plans have stalled in the Senate.

“States budgets are in transition, apparently improving as state revenues stabilize and begin their slow march to pre- recession levels,” the group wrote. “But many uncertainties lurk, with their impact poised to hit state budgets next year.”

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net

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