States rake in the cash

Say it isn’t so! And folks, this isn’t due to massive state tax hikes, either:

State government revenues are soaring again, ending a period of budget shortfalls and prompting proposals for tax cuts and new spending initiatives for the first time since 2000.
Tax collections rose to a record $600 billion in the states last year, up 7.2% over 2003, the biggest increase since 2000. The money is rolling in even faster this year as many states report double-digit revenue increases through April. (Related story: States find budget wiggle room)

The most immediate effects of improving state finances across the USA are college tuition hikes that were smaller than expected, pay raises for government workers and less borrowing. The big decisions β€” tax cuts vs. major new spending β€” are starting to brew in most legislatures but won’t be decided until late this year or early 2006.

Many governors and legislatures are reacting cautiously to the rising revenue, approving mostly small new spending proposals and tax cuts. Arizona funded a new medical school. Utah boosted its tourism promotion budget. Idaho plans to give a 1% bonus to teachers and other public employees.

The reversal of fortune ends what the National Governors Association had called the states’ worst economic situation in 60 years.

“We’ve come a long way, baby,” says Massachusetts Gov. Mitt Romney, a Republican. He faced a $3 billion budget shortfall during his first year in office in 2003. Now, his state is on track for its second straight year of surpluses. He wants to use about half the surplus to cut the state income tax to 5% from 5.3%.

About 30 states are still working on budgets for the fiscal year that begins July 1.

“Nearly every state is at or above what they expected to get in revenues,” says Arturo Perez, a budget analyst at the National Conference of State Legislatures.

He says many states were stunned by an “April surprise” of unexpectedly large tax collections. April is the most crucial month for state revenue β€” like December for retail stores β€” because that’s when income taxes are due. California, Pennsylvania, Arkansas, Idaho and Vermont are among many states enjoying unanticipated windfalls.

Gasp! Those Bush tax cuts sure did KILL the economy, didn’t they?