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State budgets are doing better, but will they spend the new income?

David Weinberg Apr 30, 2013
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It’s been four years since the great recession hammered state budgets. But new census data shows that state tax receipts crept back up to their pre-recession levels. In total, states collected nearly $800 billion last year. That’s the highest level ever recorded.

The recovery has been fueled by increases in state income taxes, sales taxes and real estate taxes. “Our tax revenue has finally recovered. They are pre-recession levels,” says Fred Church, the deputy budget director with the Ohio Office of Budget Management.

Return to pre-recession levels has allowed Ohio to spend money on programs that had been cut during the recession. “In this budget we were able to put significant amount of money back into K-12 education,” Church says.

And much like other states, Ohio is using its budget surplus to repay the state’s rainy day fund. “We’ll probably bring the rainy day fund up to its target level of 5 percent of revenues,” Church adds.

Ohio also hopes to take advantage of the budget surplus to lower state income taxes.

“States like Kansas, Missouri Ohio, Minnesota, and Massachusetts are looking at different types of tax changes,” says Todd Haggerty, a fiscal policy analyst at the National Conference for State Legislators.

Depending on the political climate, some states are using surpluses to lower taxes while others are using the revenue to restore services.

“Things are improving. They are at a stronger spot then they have been in previous years, we’re just not seeing the robust recovery that typified previous recoveries,” says Haggerty. It took states only one or two years to get back to pre-recession levels in both the 1991 and 2001 recessions. This time around, it’s taken four years.

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