Study indicates states still face more economic woes

Published: Tuesday, Dec. 15 2009 12:00 a.m. MST

SALT LAKE CITY — "There's light at the end of the tunnel," said Utah Gov. Gary Herbert when he recommended his 2010-11 budget last week.

But it's light that the National Conference of State Legislatures doesn't see.

Every state's financial woes are, of course, unique. And Utah, as residents have been told time and again, is better managed than most. (Another nationwide study recently showed that only three states are better off financially than Utah.)

But questions have already been raised that Herbert and GOP legislative leaders are being too optimistic about Utah's economy recovering next year.

The updated NCSL study released Monday does reflect nationwide what Herbert and GOP leaders see here — there will be a larger budget gap in the current fiscal year (which ends June 30) than anticipated.

A number of states are seeing that, the report says.

However, Utah state economists predict Utah's tax revenue will actually rebound in fiscal 2011. State revenues should increase by $34 million, the new estimates show.

That is not what many other states are seeing, according to NCSL.

"The longest economic downturn in decades appears to be well entrenched and is manifesting itself in multi-year budget shortfalls. Many states already foresee budget gaps in FY 2011 and FY 2012. It is hard to see when they will end," the report's authors say.

History shows that state budgets show a continued struggle long after a recession ends, the report adds.

In the past, Utah's conservative budgeting — overseen by GOP leaders in the House and Senate — have been more pessimistic than budgets suggested by previous Republican governors and Democratic lawmakers.

But the $11.3 billion budget recommended by Herbert, and highly praised by GOP legislative leaders, seems to buck that trend.

Herbert's budget is only a recommendation. In mid-February lawmakers will get updated revenue collections for this fiscal year and new estimates for tax collections for the new budget year beginning July 1, 2010.

They will use those numbers to decide how to balance out the 2009-10 budget (it's down an estimated $183 million, and Herbert recommends another 3 percent cut in state spending over the next six months) and determine budget cuts for next fiscal year.

If those February projections are worse than those released with Herbert's recommended budget, then more cuts must be made, or legislators will look to new revenue sources.

Herbert, facing election on his own to the governor's office next year, did not include any tax or fee hikes in his 2010-11 recommendation.

He does suggest spending all of a $100 million special education student growth fund and tapping nearly 40 percent of the state's $418 million Rainy Day account to make up budget shortfalls over this year and next.

Herbert readily admits that Utah's state budget is "structurally" out of balance. That's a fancy term meaning that the state is spending more money than it is taking in, with Herbert and lawmakers making up the difference with various pots of one-time monies.

Herbert says that must be addressed down the road. For example, the current budget is out of structural balance by around $450 million, and his new recommended budget is out of balance by $440 million.

"We're going the right direction" in trying to reduce that deficit, Herbert told Utahns in a Friday budget press conference.

That imbalance is a concern for GOP legislative leaders as well — spending money the state doesn't have.

But the leaders believe Utah, which had a thriving economy before the long, deep recession, will rebound quickly. And most, if not all, of that $440 million will come back in increased tax revenue two or three years down the road.

The NCSL report says that all told, state governments face a $145.9 billion shortfall in revenues-to-spending in the current fiscal year.

While Herbert said his recommended budget does not count on another round of federal stimulus money to get the 2010-11 budget balanced, other states are clearly hoping for that cash.

Utah took hundreds of millions of federal dollars to balance out the current spending plan (although it is now $183 million in the red) and likely would also accept more federal cash, should Congress offer it.

e-mail: bbjr@desnews.com

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