State surpluses spark debate

Clamor for new spending reveals fissures among politicians

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JEFFERSON CITY, Mo. -- As legislatures return to action and governors outline their budget plans, politicians in many states are facing a pleasant election-year challenge: What to do with all the extra money?

A slow but steady economic recovery is generating more tax revenue than many states had anticipated, offering elected officials tantalizing choices about whether to ply voters with tax breaks, boost spending for favorite programs or sock away cash for another rainy day.

It's a tricky question because of the economic experiments begun almost nationwide since the recession. A couple of dozen Republican-controlled states have been seeking prosperity with tax cuts and less government. Their Democratic counterparts have sought to fortify their economies by investing more in education and other social services.

The clamor for new spending is already revealing fissures among some governors and lawmakers. Clashes have arisen even within the same party, suggesting that debate in some places could widen beyond typical partisan disputes.

Democratic New York Gov. Andrew Cuomo, for example, wants to tap a surplus to cut taxes, despite other Democrats' ideas for new spending. In Louisiana, Republican Gov. Bobby Jindal wants to steer the surplus to education and health care.

The National Association of State Budget Officers projects that almost all states will see "fairly decent surpluses" in their 2014 budgets. For some, it may be the first extra cash since before the recession began in late 2007. In many states, the surpluses coincide with elections that mark the first opportunity for officials to be judged on the results of their economic policies.

Voters in November will choose 36 governors and more than 6,000 state legislators in what amounts to a referendum on whether they want to continue the single-party dominance that now exists in three-fourths of state capitols.

"I think this election cycle will tell us a lot about whether or not we're going to have better fiscal-management officials in charge, or whether we're going to go back to business as usual, which is if the revenue comes in, let's figure out a way to spend it," said Ross DeVol, chief researcher at the Milken Institute economic think tank in Santa Monica, Calif.

In California, once the epitome of busted budgets, a resurgent technology sector and recent temporary tax increases have generated forecasts of a $3.2 billion budget surplus. Democratic Gov. Jerry Brown wants some increased spending, but also to pay down debts and rebuild a rainy day fund. "It isn't time to just embark on a raft of new initiatives," he warned.

Michigan Republican Gov. Rick Snyder's budget director has predicted that another tax cut is "inevitable" in light of a roughly $1 billion surplus. Yet Mr. Snyder first wants to put more toward early-childhood education.

"Then to the degree that there are some resources left, it's a fair question: What can go in the rainy day fund or what can be given back to taxpayers?" Mr. Snyder said in an interview.

Big tax cuts also are on the agenda in Florida and Missouri, where surpluses are expected.

Some Democratic governors facing re-election also are proposing to roll back recent tax hikes. Democratic Minnesota Gov. Mark Dayton wants to devote half of an $825 million surplus toward cutting middle class taxes and repealing new taxes on business transactions. But the Senate Democratic leader, who is not up for re-election, is opposing that.

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