NCPA - National Center for Policy Analysis

States Are Tightening Their Budget Belts

July 6, 2001

For 46 states, the 2002 fiscal year arrived last Sunday. And with it came the imperative to trim the kinds of budget increases states had come to expect over the previous four years. The current wobbly economy has reduced the pace of state revenue increases -- which will mean less money for education and health care, the two biggest state expenditures.

Not all states are feeling the pinch, but 10 are considering an overall increase in taxes. And the tax cuts being considered by 22 states are puny compared to those of earlier years.

  • State spending for fiscal 2002 will increase just 3.6 percent nationally -- a far cry from the 8.2 percent increase in fiscal 2001.
  • The value of new tax cuts is just $677 million for the coming year -- compared with $7 billion in 1999.
  • The amount of money being set aside in "rainy-day" funds will drop to 5.9 percent of expenditures this year -- far below the 10.1 percent of state spending in 1995.
  • At least 11 states had to cut spending to balance their budgets during the second half of fiscal 2001.

Some analysts point out that as the economy shifts away from goods and toward services, state sales tax revenue will continue to fall -- and health-care costs will continue to rise. South Dakota is the only state to tax services.

Source: Martha T. Moore, "States Struggle with Budgets as Money Drips In," USA Today, July 6, 2001.

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