States Face Financial Trouble Despite Tax Revision ‘Windfall’

Despite talk of “windfalls” from federal tax revision, most states are in financial trouble, with 23 states cutting their budgets and 28 considering tax increases, a national study indicated Friday.

“(It’s) a very tight fiscal condition . . . the worst we’ve seen in the 10 years that we’ve been doing this survey,” Raymond Scheppach, executive director of the National Governors Assn., said. “The projection for the next several years would be a fair amount of (spending) restraint.”

Revenue Gain Discounted

Scheppach said that, despite much discussion about the huge revenues coming to states as a result of federal tax revision, “the so-called ‘windfall’ will never materialize in most cases.”

The average state revenue windfall makes up only 1.5% of total state general revenue, he said.

“If governors’ recommendations are adopted, 80% of the revenue windfall--$4.5 billion--will be returned to the taxpayers,” he said.

Scheppach said the survey showed that the financial health of state governments reflects economic conditions in the state.

Red Block of States

A map showing states that have cut their 1987 budgets was virtually solid red from the Mississippi River Valley west to the Continental Divide. A total of $3.15 billion has been cut from state budgets.

“States whose economies rely mainly on agriculture or mineral extraction are facing bleak fiscal prospects,” the survey said. “Meanwhile, the states in the New England-Mideast corridor report favorable fiscal fortunes. Especially hard-hit have been states that rely on energy and oil production.”

Texas made the biggest budget cut--$668 million. Alaska was second, $415 million, followed by Louisiana, $351 million, and Illinois, $332 million. The smallest reduction was $2.3 million in South Dakota.

Overall, the year-end surpluses projected by states total $1.6 billion, 0.8% of state spending and the smallest amount since the survey was started in 1978.

Tax Increases

It said a record number of states is considering tax increases.

Seventeen states are considering increases in the personal income tax, including 14 that would keep all or part of the federal windfall. Alaska abolished its personal income tax in 1979, but the governor has proposed re-establishing it.

Thirteen states would raise sales taxes, four would raise business taxes, 16 are looking at fuel tax increases and nine are considering cigarette taxes, the study said.