Budget Surplus and Fiscal Responsibility

These are good times for the states. Devolution is returning power to the states and budget surpluses are allowing legislators to cut taxes, continue social programs, and create reserve funds — all within one legislative session.

But what are the legislative priorities? According to the National Conference of State Legislatures (NCSL), the states have been operating in the black for the past three years. In FY1997-98, 30 states reported budgeted surpluses. Of the 30 states that reported a surplus 23 made deposits to a rainy day or reserve fund.

Despite taking some steps to reinvest, efforts to cut taxes and limit future ability to legislate fiscal policy were successful across the legislatures. An NCSL poll found that after education spending, tax cuts were a priority among state legislators surveyed. The poll results reflect that 19 states chose to cut taxes in 1998. In fact, 1998 represents the fourth straight year that legislators have cut taxes, approving a net reduction of $3.8 billion for FY 1999. As a result of continuous tax cuts, revenue growth is expected to slow down in 1999 to 4 percent, while appropriations are budgeted to grow 5.8 percent. During the period 1994-1998, 5 states (Michigan, Nevada, Oregon, South Dakota and Washington) adopted Constitutional restrictions to increase or introduce new taxes, bringing the total number of states with such restrictions to 14.