Rolling in dough.

• Author: Eckl, Corina
• Position: State finances and the citizenry - Includes related article on financial state of city governments

A robust economy has boosted state finances to their healthiest levels in almost two decades. Resourceful state lawmakers are sharing the wealth with citizens, but not without considerable debate on the best way to do it.

It used to be impossible for states to have their cake and eat it too. At least it was impossible in the 1980s and early 1990s when lawmakers struggled with limited resources. But the rules of the game have changed.

The robust economy has given legislators an abundance of desirable choices: boost spending, cut taxes or squirrel money away for a rainy day. Remarkably, many states have been able to do it all.

The latest turnaround began in earnest in FY 1994 when states expected to end the year with a general fund balance as a percent of expenditures of 1.7 percent. When the books were closed, the actual amount was 3.6 percent, more than double the projection. Similar miscalculations have occurred each year since, although to a lesser degree. Now, as states are closing their books on FY 1998, balances have reached more than $34 billion or a whopping 8.6 percent of spending, a level not seen in nearly two decades.

This bounty has allowed lawmakers to share the wealth with citizens, both through expanded services and tax cuts. But states haven't gone overboard, even in an election year. Over the past few years, many lawmakers have stashed away money in their rainy day funds, which helps explain why balances remain high despite state actions to boost spending and cut taxes. Such fiscally prudent behavior has been the rule in the late 1990s. "This thing can change in a heartbeat," say Ohio Senate President Richard Finan, referring to the healthy economy. "In 1980, we were flying about as high as we are now, and by 1983 we were in deficit financing. This time, we're building our cash reserves."

Ohio isn't the only state preparing for a downturn. Eighteen other states made rainy day fund deposits in 1998, with several, such as Connecticut, New Mexico and Vermont, boosting their fund balances to their legal maximum. Last year 17 states used unanticipated revenues to shore up their funds.

At the same time states are saving, they're using their excess revenues to boost spending. Nationally, general fund appropriations are budgeted to increase 5.4 percent above fiscal year 1998 spending. That's more than twice the rate of inflation, which is running well under 2 percent. Although the beneficiaries of this increase are widespread, some states made a special effort to focus on certain programs for extraordinary increases, education being a common target. "In this term of the Legislature, we have made an unprecedented reinvestment and commitment to education, both K-12 and higher education," says Representative Jerry LeBlanc, who chairs Louisiana's Appropriations Committee. "All of that reinvestments is having a substantial impact, not only on our education system but also on the whole feeling of our citizens as to what...