Both NASBO and the NGA are headquartered in Washington, D.C., and additional budget forecasts can be found on their respective Web sites.

On another note, 2008 could offer some budgetary surprises. “National economic trends have a huge impact on state finances,” said Sujit M. CanagaRetna, senior fiscal analyst for the Council of State Governments (CSG). Headquartered in Lexington, Ky., the CSG is an association that helps states share resources, ideas and strategies to identify the best new approaches to significant state problems.

“Though states are in considerably better financial shape than earlier this decade, when they faced their worst financial downturn in 60 years, there are ominous signs that point to another economic downturn,” CanagaRetna added. “Current state revenues lag long-term historical trends, and a number of states are already signaling the onset of budget shortfalls. States continue to face rising expenditures for health care, education, retirement systems, corrections, transportation, emergency management and infrastructure. In 2008, states will confront the combined pressure of dealing with these expenditure categories and the fallout from the contracting national economy.”

Legislative bottlenecks in Congress, coupled with the uncertain economy, cause concerns for Kim Reuben, a senior research associate at the Urban Institute. The Washington, D.C.-based Urban Institute conducts policy research and promotes sound social policy and public debate on national priorities.

“I’m less optimistic about state budgets in 2008," Reuben said. "I do think that there’s going to be a fallout from what’s going on now both on Wall Street and with the housing market in general. So how that’s going to trickle down to the states, and how states are going to make decisions about issues like health care, when the federal government is sending very mixed signals, remains to be seen.”

To ride out the fiscal turbulence of the housing market and counteract Congress’ lengthy process for making budget decisions, some states are tapping into new revenue sources. For fiscal 2008, various states have enacted a variety of revenue generators, including hikes in cigarette and tobacco taxes, corporate income taxes and fees and motor-fuel taxes, according to the NASBO/NGA “Fiscal Survey of States” report.

In New York state, Gov. Eliot Spitzer, when faced with a $4.3 billion budget deficit in 2008, thought briefly about requiring Amazon.com and other online retailers to charge state and local sales taxes on all purchases from New York. By assessing these taxes, the state could collect tens of millions of dollars in lost revenue from unreported taxes via New Yorkers who shop at out-of-state online retailers, including Amazon.com.

Although Spitzer backed down on his plan to tax online retailers, other groups are working in a similar direction. The Governing Board of the Streamlined Sales and Use Tax Agreement, which is a multi-state group working to collect sales taxes on Internet and other purchases delivered from out of state, is working to expand its current 15-state roster to at least 20 states by 2010.

Local governments confront lengthy slate of budget priorities

Numerous sources, from think tanks to trade groups, say cities and counties were fiscally healthy in 2007, but that 2008 may bring some tightness in each jurisdiction’s budget.

According to the “City Fiscal Conditions in 2007” report issued by the National League of Cities (NLC), seven in 10 city finance officers said that their cities were better able to meet fiscal needs during 2007 than in the previous year.

Cities have seen their revenues grow: General-fund revenues in 2006 were 6.6 percent higher than 2005 levels, and at the close of 2007, city finance officers were expecting revenue growth to reach 3.6 percent over 2006 levels.

The picture for 2008 is less optimistic, with those same city officials in the NLC survey predicting a slowdown in revenues and increased spending pressures. Concerns about the health of real estate markets and their potential impacts on property tax revenues, combined with increased calls for property tax relief from homeowners, may cloud the picture in 2008.

Inflation also is impacting municipal budgets. “The purchasing power of cities and towns is under tremendous pressure—with increasing costs for such staples as public safety and infrastructure, as well as increases in health insurance and pensions for public employees,” said NLC Executive Director Donald Borut. “Cities are doing the people’s business—getting commuters to work, picking up the trash, keeping libraries open, making sure their streets are safe. And city leaders are being innovators. But it’s getting more difficult every year in the face of increased demands for more services from their constituents.”

Health care and pension costs, in particular, are increasing at a faster rate than city revenues. The NLC 2007 report found that when adjusted for inflation, city revenues grew only 1.1 percent from 2005 to 2006, while expenditures grew by 1.2 percent.

To boost revenues in 2008, nearly half (45 percent) of all responding city finance officers in the NLC survey reported that they have increased fees and charges for services. Twenty-nine percent reported that their respective city opted for increasing property tax rates, while 17 percent reported reducing property tax rates. The NLC survey noted that cities have been less likely to increase sales- or income-tax rates.

On the spending side, three in four city finance officers reported increases in public safety spending in 2007, while 59 percent have boosted spending for infrastructure or capital projects. About 52 percent of respondents to the NLC 2007 survey said they are increasing the growth rate in their operating budgets to support a variety of new and existing services, and 39 percent reported increases in human services spending.

At a National Association of Counties (NACo) Corporate Forum held last October, county officials echoed some of the same areas of concern for 2008 as city finance officials noted in the NLC survey, including:

• Increased costs of health insurance.
  
• Increased exposure on post-employment health and other insurance benefits.
  
• A likely increase in spending for technology products and solutions.
  
• Increased attention to the coming knowledge drain by the retirement of an estimated 40 percent of the work force within four years.
  
• Increased spending on security, including homeland security operations.
  

In California, the state’s 2008-2009 budget, when approved, will have a big impact on Golden State counties.

“Many of the programs and services that counties provide are in partnership with the state of California, and when funds are reduced for those areas, counties are either forced to cut back those services or provide funding of their own to ensure that those services are maintained,” said Jean Hurst, who is legislative representative for revenue and taxation for the California State Association of Counties in Sacramento, Calif. “I think that while there are certain areas of the state that are managing, overall, it’s a pretty grim outlook.”