State budgets
States are in the money again. Economic growth is boosting tax revenue, filling coffers drained dry in recent years.
Total state revenue is up 9% this year, twice the increase that Uncle Sam is enjoying.
Expect similar rises in 2006 and 2007 as economic gains continue. Big winners include Ark., Ind., Mass., Nev., N.Y., and Ore.
Only five states still face red ink: Alaska, Calif., Colo., S.C., and Texas. But even they have greatly reduced deficits.

States have an additional $43 billion to spend, save, or return through tax cuts.
Most of it will be spent, doled out to satisfy pent-up demand for roads and bridges, schools, hospitals, law enforcement, prisons, and economic development. Revenue sharing will give local communities a transfusion.

New projects will come in all shapes. In Neb. and Okla ... aid to hold down tuition at state universities and to add more police. Mo. will put money into roads, Wash. into a new prison. Ariz. wants to build a medical school and spend $20 million to recruit more nurses. Conn., Mo., Nev., Tenn., and Wash. will restore some Medicaid cuts.
But most states won’t get sucked into long-term commitments. Projects will be mostly one-shot deals, not ongoing programs.
And many states plan to replenish their depleted rainy-day funds.

At least seven states are considering tax cuts. The Republican governors of Ohio and Mass. want to cut income tax rates by about 10%. Ga., Ky., Ore., Tenn., and Utah may extend breaks for business development or trim sales taxes.

Longer term, states are eyeing tax overhauls.
Their aim: Catch more services in sales tax nets that are now geared largely to sales of goods. For states that rely heavily on sales taxes, including Ariz., Ark., Ga., Nev., N.M., Utah, and Wyo., the need is especially pressing.
That’ll translate into tax hikes for most folks. New levies on services will tack a few pennies onto dry-cleaning bills or haircuts, but much more onto pricey items such as cosmetic surgery. N.J. now taxes the latter, adding $300 to the cost of a $5,000 facelift.

Taxes
Local governments won’t get much of a property tax windfall, despite tax bills increasing in tandem with home values. Assessments in many communities have skyrocketed in recent years.
Soaring tax bills are fueling revolts by homeowners squeezed by taxes on paper profits that they may never be able to realize.
Nervous politicians are rushing to respond, rolling back rates, capping annual increases, or giving rebates to retirees on fixed incomes.
And as home appreciation slows or halts, tax hikes will ease.

Nonprofit hospitals will have to earn their tax-exempt status. Congress is going to tighten regulations for offering charity care so that the poor and uninsured don’t lose emergency and other services.
Online retailers beware: Allowing customers to return merchandise at bricks-and-mortar stores can trigger state sales taxes. This is true even if the Web store has no in-state presence, a Calif. court says. The ruling on Borders.com is likely to have an impact in other states.

HR
Health insurance premiums will go up 9% on average next year, the slowest rate of increase since the 8.2% advance in 2000. The trend of shifting more costs to employees through higher deductibles and copays, plus the use of disease management programs, is paying off.
The rate-rise slowdown is likely to last through 2008 or so. Longer term, an aging population and new technologies will push up costs.

Look for a slight acceleration in average pay hikes ... a couple of tenths of a percent above the 3.5% annual rate since 2003. Top performers are likely to get raises in the 4% to 5% neighborhood, while employees showing average performance may get only 1% to 2%.
Incentive pay and bonus pools will also expand at many companies that meet or exceed 2005 profit targets, continuing a long-term trend. More and more employees get extra pay for hitting performance goals.

New, affordable labor timekeeping tools for small businesses can foil time card cheats and keep better track of mobile staff.
Software for cell phones logs mobile workers’ time on the job. Timecard, developed by ECONZ Wireless, is offered by Verizon Wireless.
Another system uses fingerprint readers to identify employees. The TouchStation Biometric Time System is made by the Lathem Time Corp.
Both can be integrated with popular accounting software packages to improve the accuracy and speed of bookkeeping and payroll functions.

© 2005 The Kiplinger Washington Editors, Inc.