Revenue on rise for state and local governments

By Dennis Cauchon, USA TODAY
Updated 3h 8m ago |

State and local governments are enjoying a strong rebound in revenue that will make balancing this year's budgets easier, but a nearly $40 billion falloff in federal stimulus aid starting in July could pose steep challenges.

A new wave of conservative governors and legislators elected in November is shaping taxing and spending policies this month with more money to work with than their counterparts had a year ago. Revenue rose 4.3% last year, the best since before the recession began in December 2007, reports the Bureau of Economic Analysis.

Tax collections got better as the year went on, and the biggest gains in sales and income tax collections came during the final three months of 2010. Most states are exceeding their revenue forecasts. What's unclear: Whether rising tax collections will make up for the sharp decline in federal aid.

"We're having growth across the board, in every category, in income and sales taxes," says Oklahoma Treasurer Ken Miller, a Republican. "That's certainly good news for those writing the budget." The big problem is the looming drop in federal aid — a "cliff," he says. Some governors and legislators already are considering major program cuts.

On the rise

Annual change in state and local government revenue:

Source: Bureau of Economic AnalysisThe federal government became the No. 1 source of state and local funds after the stimulus law passed in February 2009. Most aid for education and health care expires June 30, when the budget year ends in 46 states.

"Although revenue is improving, it's not enough to offset the loss of federal dollars," says budget analyst Arturo Perez of the National Conference of State Legislatures.

The other uncertainty is the changed political landscape — the election of 28 new governors and 1,700 new state legislators, mostly conservatives.

The new governors have made many budget cut and reorganization proposals. Iowa Gov. Terry Branstad, a Republican, wants to cut business taxes and raise them on casinos. Florida Gov. Rick Scott, a Republican, will unveil a budget today that proposes that teachers, police and other public workers contribute to their pensions for the first time. California Gov. Jerry Brown, a Democrat, wants to extend tax increases and cut some spending.

States, cities and school districts also have restrained spending during the last three years, although total spending never fell. A 0.9% national increase in 2009 was the low point.

Last year, states reduced their workforce by about 200,000 workers — 0.5% for states and 1.3% for cities, counties and schools.

The hard times forced his city to become more efficient, including laying off about 30 workers in its staff of 1,250, says Macon, Ga., Mayor Robert Reichert, a Democrat. Macon trimmed its medical plan for retirees, a move that may save millions. The city also is struggling to pay pension costs. "I just got handed a $5 million bill to contribute more to the pension," the mayor says. "It's like Groundhog Day. I'm looking for the sun to come out." ... 7_ST_N.htm