State Budgets Beginning Recovery

Stateline has an excellent article updating the state budget situation: they find that 28 states report revenue will be higher for the current budget compared to last year. Continuing drops in the other states coupled with higher spending and a drop in federal aid from the expiring stimulus spending means about $72 billion in budget gaps being closed right now, according to the National Conference of State Legislatures (NCSL):

Iowa could finish the current budget year with a surplus of nearly $1 billion because of higher-than-forecast tax receipts. Oklahoma and West Virginia have posted six straight months of revenue increases. Kentucky’s budget director says the state could end the current fiscal year with a $58 million cushion if current trends hold. Minnesota collected $55 million more than predicted between July and September, allowing the state to trim its 2010 budget shortfall to $22 million.

Experts like our friends at the Rockefeller Institute of Government will be keeping a close eye on November and December revenue reports:

November and December are the crucial months for state sales tax collections, which make up a third of state revenues. The big question for state governments this year, as Robert Ward of the Rockefeller Institute of Government puts it, is “Will Santa bring lots of Christmas toys?”

As Churchill famously said, not the end nor even the beginning of the end, but perhaps the end of the beginning. States shouldn’t expect to surpass the revenues they were getting at the height of the boom (who would?) and the economy recovery is soft so far, but structural revenue is not aligned with structural spending in most states. There will be a lot of activity in state legislatures in 2011 trying to do exactly that (or avoid doing so).