States are squeezing every dime in the face of tightening budgets. According to the "Fiscal Survey of the States," conducted by the National Governors' Association and the National Association of State Budget Officers semi-annually, states are struggling with increased health-care costs, slow retail sales, and the reality of previous tax cuts. This slowdown will affect public construction—the question is: When?

Most governors predict lower proposed general spending in 2002 than in 2001. The cuts have yet to have a major effect on state infrastructure expenditures, but slowdowns are expected to appear in the Southeast and Midwest. Hardest hit with budget difficulties are states that depend disproportionately on sales taxes, especially those with no income tax. Almost all states are tightening their belts, and nearly 20 states are cutting current-year spending.

One bright light for states is that recently enacted federal tax cuts focused on rate reductions and credits against federal tax liability rather than on changes in taxable income, which would have an immediate impact in states that align state income tax tables with federal tax tables. Although businesses supported the federal estate tax phase-out, the cuts will negatively affect state coffers. An estimated 40 states and the District of Columbia find their relationship with the federal estate tax tables will cause the effective repeal of their state estate taxes. According to the NGA/NASBO survey, states will lose somewhere between $50 billion and $100 billion in estate tax revenues over the next 10 years. The phase-out approach will allow states to hunt for the matching funds required on federally funded projects. Nonetheless, they will likely raid state construction programs to complete that match.

Copyright 2001 The American Institute of Architects. All rights reserved.