States Adjust to Changing Economy.

• Author: Eckl, Corina
• Position: Impact of national slowdown - Statistical Data Included

After years of robust growth, the national economy is starting to slow.

What does this mean for state finances?

The national economy has been red hot for several years, and state finances have reaped the benefits. But times are changing. The nation's economy is cooling, the stock market has lost much of its luster, consumer confidence has declined for five consecutive months, and an increasing number of layoffs are being reported. While this slowdown obviously is affecting state finances, the impacts have been uneven. As a group, states have seen their fiscal situations take a turn since last year. But there remains good news in many states.

ERRATIC STATE REVENUES

Much attention has been focused on state revenue collections and whether they are meeting expectations. Although revenue growth appeared strong at the beginning of the fiscal year, collections have been erratic in recent months and generally have slowed. December collections were particularly disappointing. Yet despite sluggish growth, revenue collections through January were on target in 11 states and above target in another 20. In some states, collections were significantly better than expected.

Regional patterns emerge from the data. States with strong growth tend to be in the West (California, Idaho and Utah), Northeast (Connecticut, Massachusetts and New Hampshire) and Middle Atlantic (Maryland, New Jersey, New York and Pennsylvania).

In New York, revenue growth is projected in excess of 13 percent. "I think our strong growth is the direct result of huge tax cuts we've implemented in recent years," says Senate Majority Leader Joseph Bruno. "We've also developed several initiatives to stimulate business growth and generate jobs."

Other states experiencing stronger than expected revenue growth are the big severance tax states, Alaska, Louisiana, Montana, New Mexico and Wyoming.

At the same time, shortfalls are occurring in many Southern states, including Alabama, Arkansas, Kentucky Mississippi, North Carolina, South Carolina, Tennessee and Virginia. Three states in the Great Lakes region--Indiana, Michigan and Ohio--are in similar situations.

"Revenues are growing at about half the 5 per cent growth we've seen in recent years," says Ohio Senate President Richard Finan. "We can still buy a suit, but now we're buying it at Sears & Roebuck instead of Brooks Brothers."

How state revenues will fare throughout the remaining months of the fiscal year is the $64,000 question. Although December revenues were weak, some states reported that collections rebounded in January. This has left some forecasters wondering if the January situation is an aberration or a sign of things to come. Time will tell. In the meantime, states in the West tend to be optimistic about continuing strong revenue growth. Others, especially those in the South, are much more pessimistic. But not all.

"I'm not unduly concerned about the current situation," says Michigan Senator Joanne Emmons, majority floor leader and chair of the Senate Finance Committee. "Bitter cold weather shut down construction in December, January and part of February, and those shutdowns are reflected in our revenue numbers. But we have a huge amount of upcoming highway construction that will do good things for our economy."

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