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State budget holes shrink

June 12, 2012: 12:04 PM ET

With revenues expected to recover to levels not seen in five years, and projected slowdowns in spending, states are narrowing the enormous budget gaps left by the recession.

But the bad news is states are still burdened with rising costs, particularly in health care, and many are still slashing jobs to save money.

At least 19 states estimate they will face a collective $30.6 billion budget gap in fiscal 2013, according to a survey by the National Governors Association and the National Association of State Budget Officers (NASBO).

Their biggest concern right now is ballooning Medicaid spending, which is expected to increase another 3.9% in fiscal 2013. The weak economy led more Americans to enroll in the health care program. At the same time, enhanced matching funds from the federal government (thanks to the 2009 stimulus bill) petered out last year. Medicaid accounts for the largest single portion of state spending.

While not all states have published budget estimates yet, so far 11 have indicated they will consider more layoffs as one cost-cutting measure.

Overall, governors have proposed $682.7 billion in general fund spending in fiscal 2013, a 2.2% increase over 2012. They're forecasting revenues of $690.3 billion, which would be  a 4.1% increase over fiscal 2012. At those levels, revenues will have returned to their pre-recession levels, but state spending will still fall short of its 2008 high.

"Consequently, state budgets reflect a national economy in which growth is slow and not as robust as in previous recoveries, yet overall state fiscal improvement is occurring," the report said.

Most states start their fiscal year on July 1.

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About This Author
Annalyn Censky
Annalyn Kurtz
Writer, CNNMoney

Annalyn Kurtz is a senior writer at CNNMoney, where she covers America's jobs crisis, Federal Reserve policy and other economic news. Before joining the site in 2010, she served as a Rotary Ambassadorial Scholar in Prague and interned at Fortune Small Business magazine. @annalynkurtz

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