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States Use Spending Spree on Tax Cuts, New Programs

Tax cuts, new cash to health care programs, blueprints for new roads and schools — states have jumped into 2006 with ambitious plans to spend the money pouring into their coffers, a windfall that's just in time for governors and legislators as they start re-election campaigns.

The spending spree is the clearest proof yet that the gloomy days of cuts and budget-tightening that dominated the first half of the decade are over, even as some urge caution and others say states have yet to fully recover from the downturn.

Lawmakers are arguing for tax cuts in Alabama, Arizona, Hawaii and New York. California is looking at sweeping road improvements. Property taxes are being targeted in Maryland and Florida.

"It's a lot better having extra, let me tell you," said Massachusetts Gov. Mitt Romney. "My first few weeks in office we had to find immediate savings to avoid a financial crisis ... The last two years have seen a billion dollar-plus surplus."

Romney, a Republican who is exploring a presidential run, wants to invest in education with laptop computers for 500,000 students to cost $54 million over two years; to cut the state income tax from 5.3 percent to 5 percent over two years; and to invest $200 million toward implementing a universal health insurance program in the state.

Massachusetts is one of many with ambitious spending plans:

— Florida: With $3.2 billion in higher-than-expected revenues, GOP Gov. Jeb Bush is pushing for $1.5 billion in tax cuts, including a rebate for homeowners, elimination of a tax on stock and bond holdings and repeal of a tax on alcoholic beverages sold by the drink.

— Oklahoma: Democratic Gov. Brad Henry wants to pour most of the extra money into education, with scholarships and raises for teachers. He also wants to cut taxes on retirees, fix bridges and fund high-tech research.

— California: GOP Gov. Arnold Schwarzenegger proposed a stunning increase in spending, including a record $54.3 billion for K-12 education; $170 million over two years to get health care for 300,000 uninsured children; and a big boost in funds for highway improvements. The state estimates $7 billion in higher-than-expected tax revenues over two years.

"Frankly, it just fits exactly with how the cycle goes," said Scott Pattison, executive director of the National Association of State Budget Officers, which reported at the end of last year that "state fiscal conditions rebounded notably in fiscal 2005."

"We had a boom in the late '90s, so we could do plenty of tax cuts and program expansion. ... Then of course we went through the really bad budget-cutting time. Now, with revenues back up, you'd expect exactly that. We're back to proposals for additional spending and tax cuts."

Republicans and Democrats alike are embracing tax cuts, though Democrats this year mostly argue for targeted cuts while Republicans push for more sweeping changes. Thirty-six states choose governors this year, and all states but four will elect legislators.

"I want a new perception for Democrats — that we're pro-growth, that we're pro-working families through investments and training," said New Mexico Gov. Bill Richardson, head of the Democratic Governors Association, who is considered likely to pursue a presidential run. He proposed several tax cuts this year to build on earlier income tax cuts, but most did not win legislative approval.

In Arizona, Democrat Janet Napolitano is proposing $100 million in tax cuts, aimed at giving breaks on employee health insurance, high-technology research, gas-thrifty vehicles and back-to-school purchases. Republicans in the legislature would quadruple her plan with $440 million in tax cuts.

Napolitano is convinced voters want to see state leaders manage finances responsibly. That means using two-fifths of an estimated $1 billion surplus to pay back budget-balancing maneuvers during the rough times, like $118 million the state borrowed from road-construction funds.

She has already signed a Republican bill providing a healthy pay raise for state employees and is pushing for a raise for K-12 teachers, complete funding for all-day kindergarten and $100 million for border-related law enforcement.

"When I came into office, I kid you not, my predecessor governor left me a ceramic jar on the desk labeled rainy day fund. And in it was 30 cents ... a quarter and a nickel," Napolitano said. Back then she faced a $1 billion shortfall. Now, she said, "we have more choices."

Even the most ambitious plans mix new spending and tax cuts with savings, but some analysts worry that state leaders might be going too far too fast.

"People really have to be careful," Pattison said. Surpluses reflect the cautious budgeting of the past few years. "It's because revenue went down so far and we're very cautious about future projections. It doesn't necessarily mean that happy days are here again."

But even those who've criticized tax cuts in the past see the attraction now.

Saying he shortchanges education and other needs, Florida Democratic leaders have often criticized Jeb Bush's overall tax policy, which since he won office in 1998 resulted in $14 billion in tax cuts so far.

This year, however, Democrat leaders proposed $100 rebates to homeowners, while Republicans wanted a sales tax holiday that would cover goods costing up to $5,000.

Both sides got their wish. Bush, with so much money in hand, incorporated both ideas into his tax-cut plan.