States' coffers overflow in 2006 but tighter times ahead
Last updated Wednesday, December 13, 2006 7:09 PM CST in News
By Aaron Sadler
The Morning News
WASHINGTON -- States cut taxes and shored up savings accounts in 2006, ahead of a predicted economic downturn that could slow broad economic growth, according to an analysis released Wednesday.
National Governors Association director Raymond Scheppach said a three-year period of economic prosperity may be ending, and he cautioned states to consider the long-term implications of budget surplus spending.
Like other states, Arkansas' fiscal condition was strong. The state's projected surplus is $843 million.
And like other states, that condition may be deteriorating, experts said.
Economist John Shellnut with the state Department of Finance and Administration said he does not expect tax collections in 2007 to keep pace with 2006 rates.
"The feeling within some of these revenue lines is that it is just simply not sustainable," said Shellnut, administrator for economic analysis and tax research.
He said it may be "prudent to tap the brakes of expectations."
The NGA and National Association of State Budget Officers said in a report Wednesday spending by states increased by 8.7 percent in 2006, up 2 percentage points from average.
All 50 states collected more revenue than was budgeted. Budget Officers' director Scott Pattison called that "phenomenal and unusual."
States used the extra money to rebuild savings, or "rainy day" funds used during a slowdown several years ago. Some states reinstated higher educational funding that had been reduced. Others eased the strain placed by Medicaid and other health initiatives.
Pattison said states were smart to save their money, because slower revenue growth is probably in the offing.
"We recommend there be money set aside for a rainy day, because it does seem to allow the state to kind of ameliorate the situation potentially in the next downturn," he said.
Arkansas does not have a rainy day fund, although the Legislature is likely to tackle the issue next year as it debates what to do with its extra revenue.
Lawmakers will also consider several tax-cut proposals that could draw down the surplus, including elimination of the sales tax on groceries or a reduction in income tax rates.
In fiscal 2006, 24 states enacted tax cuts totaling about $2.1 billion. Most cut income taxes.
Mike Stormes, Arkansas state budget director, said the current economic climate has continued longer than many forecasters expected, allowing Arkansas and other states to collect surpluses.
"I think at some point, obviously, you'll see an easing of the growth," Stormes said. "The whole trick is to know what's going to happen. It's obvious you have the cyclical business of downturns and upturns, and we're just now coming out of that upside."
Scheppach said state officials nationwide crafted 2007 budgets with downturns in mind.
He and Pattison said they would be surprised to see as much revenue growth in the next six months as they announced Wednesday. The NGA releases state fiscal surveys in June and December each year.
Shellnut said corporate-use tax collections have been especially strong in Arkansas, growing by double-digit percentages in 2006. He credits that partially to some federal tax incentives that have since expired.
Still, he said use-tax collections are abnormally high.
"(Revenue) just hasn't slowed as much as anticipated at this point, but that's not a reason to expect the high growth for another two years," Shellnut said.
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