NCPA - National Center for Policy Analysis

Are Clouds Gathering Over States' Finances?

July 10, 2000

The 1990s were the best of times, financially speaking, for most states, as they experienced record budget surpluses. Now some analysts are warning that revenues are no longer exceeding annual estimates in most states as costs begin to rise, while sales and corporate income tax bases are starting to shrink.

That outlook has some state governors starting to cry the blues. But a number of analysts downplay their fears. The Cato Institute's Stephen Moore points out that the governors "are just big spenders." He adds that their ranks are not confined to "just liberal Democrats."

  • New Hampshire, Tennessee, Wyoming and Alaska are reportedly facing fiscal crises -- while many Southern states, such as Louisiana, North Carolina and Alabama, have nearly depleted their savings.
  • States in the Midwest and the Northeast are said to be on firmer financial grounds, but they face the need to control their spending.
  • Even after adjusting for inflation, states spent 17 percent more for each resident in 1998 than they did in 1990 -- and this year they'll spend, on average, more than $3,000 per person.
  • States have slashed taxes by $27.3 billion since 1995 -- including $5.2 billion this year.

From 1990 to 1998, states' revenues had grown by an inflation-adjusted 20 percent. Accordingly, since 1994, states increased spending at nearly twice the pace of the federal government.

Source: Richard Wolf, "States Bracing for Leaner Times," USA Today, July 10, 2000.


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