The outlook is good.

• Position: Budgets - Brief Article - Illustration

State budget conditions continue to improve, showing strong signs of recovery in nearly every state, according to a new budget update report by NCSL. States are collecting more revenue than they projected for nearly every major tax. In some cases, collections are significantly above forecasts. Of the 49 states reporting (Texas did not have information available), 42 reported that overall revenue collections were above forecasts. This continues the trend that began in 2003 and is a dramatic turnaround from three years ago when states were in a revenue trough. At that time, collections were above forecast in eight states and below in 33.

The positive news about revenue performance is tempered, however, by soaring spending demands--both in the short and long term. In the current fiscal year, Medicaid and corrections are leading the charge for more mid-year funding. A host of other...