Economic Gains Fill Coffers Of many States

STATES that have suffered through one of the worst budgetary periods in modern history may be seeing the sackcloth lifting a bit - with implications from Washington, D.C., to local school districts.

Modest improvements in the economy are leading to an increase in state revenues. If the trend continues, it should make it easier for lawmakers to balance their books, affecting everything from tax policy to the number of police on the beat. (View from States, Page 3.)

Before waving any pompoms, first a caveat. The increase in tax receipts is modest and not universal. California - who else? - is among those not on the cheering list. Moreover, costs for many state programs continue to rise, biting into the rise in revenues.

Nevertheless, any improvement in finances is worth noting when states have been as hard pressed as a military pant leg.

"The pain in state capitols this year is less severe than the past few years," says Steven Gold, director of the Rockefeller Institute's Center for the Study of the States. "But states are not on easy street yet."

The latest evidence of improvement comes in a survey released this week by the National Conference of State Legislatures (NCSL). It found that:

* State revenues through the fiscal year's first eight months - mainly from sales taxes and corporate and personal income taxes - are on target or exceeding projections in 37 states.

* Two-thirds of states estimate revenue growth next year will be at or above the inflation rate.

* Three-quarters of states predict at least slow to moderate economic growth next year.

"There is reason to be optimistic about the performance of state revenues so far," says Arturo Perez, an NCSL fiscal analyst. "But a lot of states are still being cautious."

The chariness is understandable. In recent years, state lawmakers have watched the costs of state-mandated programs go up and revenue collections go nowhere. The result: many big program cuts and tax hikes.

Even after fashioning budgets, lawmakers often have to make last-minute adjustments - another trim here, a levy there - to close gaps, since every state except Vermont has to balance its books by year's end. None of this has sat well with voters, who believe they give more and receive less.

Thus, one reason many states are now meeting or exceeding revenue estimates is the conservative projections they put forth. Part of the improvement, though, stems from increases in money coming into treasuries because of better economic conditions.

Georgia, for example, took in 15.4 percent more in revenues in March than the year before. Its revenue collections this year are up 11.4 percent. Iowa's tax receipts are running 11.1 percent ahead of last year.

In all, 18 states report sales, income, and other taxes coming in at levels above projections for the first eight months of fiscal 1993, while another 19 states are meeting budget estimates. Ten states are below levels, including Hawaii, where tourism is down, and North Dakota, where oil revenues have dropped off. Rhode Island is having many troubles.

CALIFORNIA is on target with recent revenue projections because it reduced its forecast. The state remains one of the most troubled.

"By and large, the situation looks better for the states," says Stacey Mazer, a senior staffer with the National Association of State Budget Officers. "But it is partly because of low expectations."

The question is whether the fuller state vaults are a temporary phenomenon or a trend. Some analysts have attributed the spurt in state revenues to the "Clinton effect" - the increase in consumer spending that took place shortly after the president took office. Sales taxes are a top revenue source for states. The numbers have continued to go up, though, convincing some that the increase is more than a mirage.

"I think it is definite that the states are slowly coming out of the recession," Mr. Perez says.

The other question is whether state tills will fill up enough to offset hikes in expenses. State spending for Medicaid alone has been rising at double-digit rates. Jails, schools, and welfare are also drawing more state funds.

At the least, the higher revenues should help ease pressure on state lawmakers. Many states are planning tax hikes this year, though most are modest or for specific programs. A few states are letting temporary tax hikes expire. "Improvements in the economy have reduced some pressures on the states," Mr. Gold says. "It looks good compared to 1991-1992, but it is by no means a boom."