States Coming Out of the Lean, Mean Years

STATE legislatures are gaveling in new sessions across the country with the welcome knowledge that the economy isn't picking their pockets so cleanly this year.

While crime and a host of other problems await state lawmakers, the one issue that has dominated sessions for years - lean finances - is no longer so dire.

The result should be a 1994 relatively free of tax increases - and, indeed, a growing number of politicians are calling for tax cuts in this election year.

California Gov. Pete Wilson (R) this week proposed a series of modest reductions to boost the state's recession-hit economy. He joins at least two other governors, Mario Cuomo (D) of New York and Zel Miller (D) of Georgia, who are also pushing some kind of tax relief.

No one should yet plan any vacations on the savings, though - particularly in California. The state still faces plenty of budget problems, and the governor's tax-cut proposal could turn out to be just an election-year fancy.

One sign of how much state finances have improved is the latest fiscal survey by the National Conference of State Legislatures (NCSL). Released yesterday, it shows that 21 states are seeing revenues coming in above projections so far this fiscal year. In another 24 states, the collections are on target. Only five states report tax receipts coming in below expectations.

While the cost of state programs continues to rise, the increases in some cases are moderating. Only 10 states, for instance, expect cost overruns in Medicaid and other health programs this year.

Similarly, only six states project prison spending to exceed budgeted levels, though those numbers could change amid the almost universal clamor for tougher sentencing and more prisons.

``This is probably the best year we've seen in the 1990s,'' says Corina Eckl, a senior fiscal analyst with NCSL.

The uptick in the economy is the main reason for the healthier balance sheets. It is producing greater returns on corporate and personal income taxes and sales taxes - the main sources of state revenue.

Part of the improvement is due to reduced expectations. After years of penury, many states have been cautious in projecting revenues and expenditures - thus, six months into the fiscal year, their budgets are now more in balance.

``Most states have gotten more realistic about what their collections really are,'' says Brian Roherty, executive director of the National Association of State Budget Officers.

Arizona, Mississippi, and Tennessee are all seeing tax collections coming in more than 5 percent above forecasts. Some of the flushest states, if that word can be used, are in the Plains and Rocky Mountain regions. And in Minnesota, higher revenues and lower-than-expected expenditures are expected to help the state build its ``rainy day'' reserve fund up to $500 million this year.

Not every state is seeing its pockets deepen, however. The drop in oil prices is leaving Alaska with a serious funding gap. Reduced tourism is hurting Hawaii. Kentucky, New Jersey, and Rhode Island are also experiencing revenue falloffs.

California's woes, of course, have almost become a cliche. Just how bad they are, or aren't, will become clearer today when Governor Wilson unveils his proposed budget for fiscal 1995, which begins in July.

By one estimate, the state could face a $4 billion deficit by the end of next fiscal year without tax increases or spending cuts.

Wilson this week laid down his marker on taxes. He proposed giving start-up companies a $1,000 tax credit for each new job they create. He wants to reduce the income taxes of Californians earning less than $40,000 a year who would pay higher federal taxes under President Clinton's tax plan.

He also is proposing a costly new anticrime program. To help offset these moves, the governor is expected to propose substantial cuts in health and welfare programs. He proposes trimming the state bureaucracy.

Even with these moves, however, critics contend his numbers won't add up to a balanced budget.

Improved financial conditions in other states seem likely to ensure, at the least, that there will not be many tax increases this year.

``It should be a very quiet year,'' says Steven Gold, director of the Center for the Study of the States at the Rockefeller Institute.

While there may be fewer clashes over taxes, that doesn't mean there won't be plenty for politicians to disagree about in fashioning budgets. With more revenues coming in to many state treasuries, groups that have seen their aid cut in recent years will be back under capitol domes looking for largess.

``There is tremendous pressure to take care of problems that have been out there awhile,'' Mr. Roherty says.