As state budget dilemmas go, surpluses are preferable to revenue shortfalls. But either scenario presents challenges and difficult choices.

The latest state revenue report shows that thus far in the fiscal year, the state's tax surplus exceeds $92 million. This is more than the entire previous year. As Doug Macdonald, chief economist for the Utah State Tax Commission, notes, "When it rains, it pours."

Such healthy revenues raise the prospect of tax cuts. If these trends continue, that may be a prudent course. But while state budget revenues reflect the general upturn of the economy, Gov.-elect Jon Huntsman and state lawmakers must also attend to many pressing and long-overdue needs in state government.

As Utahns await the release of Huntsman's budget, recommendations in outgoing Gov. Olene Walker's spending plan spotlight some of the most urgent needs in state government.

In many respects, a healthy surplus enables the state to play catch-up in critical areas such as employee compensation, building needs and restoring programs and services that have been curtailed or scaled back in recent years.

For instance, Walker has proposed reopening 26 beds in the forensic unit of the Utah State Hospital at the cost of $2.1 million in ongoing funds and $1.2 million in supplemental funds in 2005. Because of the inadequate numbers of beds, jails and prisons have become de facto mental health treatment facilities. The backlog is such that after Elizabeth Smart kidnapping suspect Wanda Barzee was found incompetent to stand trial, it took 2 1/2 months for a bed to open in the forensic unit at the state hospital.

The budget surplus also provides an opportunity to remodel the University of Utah's Marriott Library and other state buildings with cash. The U. has lobbied state lawmakers for building funds to address the structure, which library official say would collapse if an earthquake measuring 5.0 or higher on the Richter scale struck northern Utah. While state funding has not materialized, the U. has received nearly $3 million from the Federal Emergency Management Agency to conduct seismic improvements. Meanwhile, private fund raising is ongoing. When the condition of the library at the state's flagship institution is such that it qualifies for a FEMA grant, it's time to launch a total renovation.

Frankly, there are many issues worthy of consideration by the incoming governor and the Legislature. In November, voters rejected an open-space initiative, but polls suggest they largely support the preservation of open space. Walker recommended $4 million for the LeRay McAllister Critical Lands Conservation Fund. Funding for these critical lands needs to be a priority.

Strong arguments can be made for more funding for the state's public schools to address mounting accountability demands and the means to better serve an increasingly diverse public school population.

Beyond that, state employees, who have received a total 1.1 percent increase in pay over the past three years, deserve a raise. Considering that inflation increased 5 percent over the same time frame and medical insurance premiums have continued to rise, state employees have lost considerable ground, financially speaking.

Again, the governor (in this case, two governors) will make recommendations to the Legislature, which is charged to establish and balance the state budget. Although there will be a great temptation to roll back taxes, restoring funding to needed programs that have been eliminated or whittled away in lean budget years should be considered before contemplating wholesale cuts in taxes.