States See Benefits, Challenges in Revenue Surpluses

ByABC News

May 26, 2005 — -- A sweeping economic turnaround could mean tax cuts and better service for millions of Americans. For the first time since the year 2000, many states are finding that budget time isn't all about belt-tightening and cost-cutting.

States collected a record $600 billion in taxes last year -- an increase of 17.2 percent over 2003. Revenues are rising even faster this year, at a double-digit rate in some states.

Instead of fighting about how to cut their budgets, state lawmakers must decide how best to use the additional revenue.

Driven by higher consumer sales and personal incomes, tax revenues are up in states nationwide. Governments are using the money to improve roads, cut class sizes and give tax breaks to businesses.

With tax revenue up 16.5 percent this year, the Arizona state government is spending $7 million to build a new medical school, $4 million to recruit new nurses and $30 million to entice moviemakers to the state.

In Nebraska, where revenues are up 11.6 percent, more state troopers are being hired. In California, up 8.5 percent, state officials are restoring a property tax cut for seniors. And in Utah, where final numbers are not yet available, officials are spending more to promote tourism.

Utah's Republican governor, Jon Huntsman, welcomes the added revenue but says it's challenging "because you've got two or three times the number of people knocking on your door trying to divert it to some new funding program."

Massachusetts epitomizes this dilemma. Gov. Mitt Romney, a Republican, wants an income tax cut, which the Democratic-controlled legislature is fighting.

"My view is, the right thing to do with the surplus is give it back to the people -- generate income that keeps the economy going and helps working families," said Romney.

But state Rep. Robert Deleo, D-Winthrop, said, "The governor's proposal to cut taxes I think is probably based more on his political aspirations as opposed to fiscal realities that we face here in Massachusetts."

Across the country, there is new money but old arguments: Should governments use tax cuts to spur the economy or focus on improving services?

In New York, Republican Gov. George Pataki and the state legislature split the difference. They are cutting some taxes but also spending more on education and health care. It was a contentious fight, but it was the first time the state legislature passed a budget on time in two decades.

Dan Harris filed this report for "World News Tonight."

ABC News Live

ABC News Live

24/7 coverage of breaking news and live events