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With Wallets Bulging, States Must Decide How To Spend Their Cash

During his January State of the State address, Wisconsin Gov. Scott Walker made the case that extra money should be returned as property and income tax cuts; some Republicans say his proposal goes too far.
During his January State of the State address, Wisconsin Gov. Scott Walker made the case that extra money should be returned as property and income tax cuts; some Republicans say his proposal goes too far.

After several lean years of cutting budgets to the bone, states hit hard by the deep recession finally have good fiscal news: Many states are now projecting budget surpluses.

But in an election year for three dozen governors, these surpluses are setting up potential political battles over what to do with the extra cash.

The first salvos are coming from governors themselves, in their annual State of the State addresses, as many of them take credit for bringing budgetary warmth to states that suffered through long, bitterly cold economic winters.

"We've stopped the bleeding. We turned the corner, and Illinois is making a comeback," said Democrat Pat Quinn in his State of the State address last month.

Michigan Republican Rick Snyder struck a similar chord in his address, declaring, "Michigan is the comeback state."

"We've come further and faster than most any other state in the economic recovery since the beginning of the Great Recession," said Snyder.

Not to be outdone, on the West Coast Democrat Jerry Brown cheered California in his State of the State: "What a comeback it is!"

Are you catching that theme? These aren't the only governors touting comebacks. Republican Jan Brewer highlights the "Arizona comeback," and Republican John Kasich has been talking up the "Ohio comeback."

This refrain resonates as states swing from deficits to surpluses.

Virtually every state should close out the year with a modest surplus, says Scott Pattison, executive director of the nonpartisan National Association of State Budget Officers.

NASBO projects surpluses ranging from a few tens of millions of dollars in some states to more than $800 million in both Hawaii and Michigan, $2 billion in New York, and more than $3 billion in California. Pattison says 43 states can anticipate increased revenue this fiscal year.

States have cautiously forecast tax revenue, and because the economy and stock market have performed better than expected, those tax revenues are exceeding predictions, he says.

"But it doesn't necessarily mean that states are awash in money," cautions Pattison.

'Give It Back To The People Who Earned It'

Nonetheless, many governors are already looking to use their surpluses in somewhat controversial ways, such as on more programs and on tax cuts.

"What do you do with a surplus?" asked Wisconsin Republican Gov. Scott Walker, who has close to a $1 billion surplus, in his State of the State address. "You give it back to the people who earned it."

Among the governors with similar ideas are Nebraska Republican Dave Heineman, New York Democrat Andrew Cuomo, and Michigan's Snyder.

Other governors are proposing to use surpluses to replenish rainy-day funds, including California's Brown.

Still other governors want to restore funding to programs that were slashed during lean times. But will this fiscal booster shot heal partisan rancor in state capitols? It's unlikely.

This is also an election year for thousands of state lawmakers, and there are some sharp differences over what to do with extra revenue.

In Missouri, Democratic Gov. Jay Nixon wants to increase spending on education by nearly half a billion dollars. But his proposal is meeting stiff resistance from the Republicans who control the Missouri Legislature.

"Our governor mistakenly believes that more, bigger government is the answer," says Republican House Speaker Tim Jones.

In other state capitols, similar partisan battles and even intraparty clashes loom. But before anyone spends surpluses, experts in state budgeting offer a bit of caution:

"Things look better than they are," says NASBO's Pattison. In most states revenues still have not returned to pre-recession levels, he says.

Other experts agree, such as Don Boyd, a senior fellow at the Nelson A. Rockefeller Institute of Government in New York.

If he picked a song to sum it all up, Boyd says it wouldn't be "Happy Days Are Here Again" — nor a blues song, necessarily.

"It would be more 'Steady as She Goes,' " he says. "If they're lucky."

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David Schaper is a correspondent on NPR's National Desk, based in Chicago, primarily covering transportation and infrastructure, as well as breaking news in Chicago and the Midwest.