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States fear flawed revenue forecasts

Associated Press / July 6, 2009
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JEFFERSON CITY, Mo. - With its IOUs and plans to close state offices three days a month, California gets all the attention as lawmakers fight to write a budget set off-balance by a $26.3 billion deficit.

But the dozens of other states that made spending cuts, tapped into reserves, or relied on federal stimulus funds to patch together budgets that took effect this past week are hardly free from worry. Many of those spending plans are based on tax revenue projections that have been wrong throughout the recession - and may be unreliable again.

More miscalculations could bring a variety of consequences: deeper cuts to services such as healthcare and education; layoffs and furloughs of state employees; and renewed consideration of tax and fee increases.

“All of these states are going to have to readjust on the fly because they’ve started budgets this year that were built on unrealistic expectations, and the revenue just isn’t there,’’ said Mark Marchand, a spokesman for the Rockefeller Institute on Government at the State University of New York in Albany.

During the just-concluded fiscal year, revenues fell below the projections used to craft budgets in 38 states, were roughly on target in 10 states, and were ahead in just two, according to a survey released last month by the National Association of State Budget Officers and the National Governors Association.

Missouri, for example, projected 3.4 revenue growth for its 2009 budget. Instead, revenues fell by 6.9 percent compared with 2008 - a more than 10 percentage point swing.

Preliminary figures for the just-concluded fiscal year indicate that states saw their largest overall decline in tax revenues since 1951, according to the Rockefeller Institute.