For the past four years, U.S. states struggled to close morethan $500 billion of budget shortfalls caused by the recession,ushering in tax increases, spending cuts and clashes withpublic-employee unions.

With the economy recovering, officials gathering in Washingtontoday for the National Governors Association winter meeting arebeginning to face a welcome choice: how to spend extra money.

Michigan Governor Rick Snyder, whose state is rebounding withthe automobile industry, may use a possible $670 million surplus tohire state troopers whose ranks thinned during the past decade.Colorado may set more aside for education. New Jersey's ChrisChristie is seeking to cut taxes and bolster an underfundedpension.

“After an extremely difficult period when revenues were crashingand a series of cuts had to be made quickly, state budgets arestabilizing,” Scott Pattison, the executive director of theNational Association of State Budget Officers in Washington, saidin a telephone interview. “In some cases you're beginning to seeimprovement in revenues coming in ahead of forecasts.”

State tax revenue has been rising at the fastest pace since2006, before the housing-market collapse, U.S. Census figures show.In the three months through September, the first quarter in moststates' fiscal years, such collections rose 5.6 percent from a yearearlier, the seventh-straight gain. That outpaces the 1.6 percentrevenue growth states assumed when drafting their budget plans,according to a Nov. 28 report by the NGA and the NationalAssociation of State Budget Officers.

Fiscal officers in 27 states and Puerto Rico think revenue is“stable” and should meet fiscal 2012 estimates, according to asurvey in October and November by the National Conference of StateLegislatures.

Officials in 16 states said they were “concerned” about meetingprojections, while seven states are “optimistic” becausecollections exceed projections, according to the report.

“I'm fairly optimistic for the spring tax collection period,barring something unforeseen,” said Pattison. “There's continued,gradual improvement.”

The three-day NGA event starts today and features agovernors-only meeting with President Barack Obama at the WhiteHouse on Monday and a black-tie dinner with the president andMichelle Obama on Feb. 26. There will be private meetings amonggovernors and their staffs and public-policy sessions includingtomorrow's opening panel: “Growing State Economies.”

Lurking Stress

In Michigan, where the unemployment rate dropped to 9.3 percentin December from a high of 14.1 percent in August 2009, the stateranked second for economic health from 2010's third quarter throughthe same period of 2011, according to the Bloomberg EconomicEvaluation of States. It trailed only oil-booming North Dakota.

Still, states' tax collections have yet to fully rebound to 2008prerecession levels, and budgets in more than half are smaller thanin 2008, according to the November report by the GovernorsAssociation and budget officers.

Unemployment remains “stubbornly high,” 8.3 percent nationwidein January, and there are uncertainties about whether the Europeandebt crisis and efforts to reduce the federal deficit will stallrecoveries, the NCSL report said.

“State policy makers have good reason to feeloptimistic about the recent and positive economic news,” said KilHuh, who follows budgets for the Pew Center on the States. “Butwhen it comes to budget matters, there may be reasons to hedge.There's stress still lurking in state budgets.”

Ohio Governor John Kasich, a Republican, said that with theexception of $2 million he promised to children's hospitals forresearch, he doesn't plan to increase spending this year. Taxreceipts for fiscal 2012 are running $147.1 million ahead ofprojections, according to the state Office of Budget andManagement.

“This economy is still a roller coaster,” Kasich told reportersin Columbus yesterday. “We're not going to be in the business ofspending money.”

The increase in collections hasn't lifted all states from theirtroubles. Illinois Democratic Governor Pat Quinn, who passed arecord tax increase last year, this week proposed increasingspending by $800 million, including a 1 percent jump for schools.With a $9 billion backlog of unpaid bills, he still proposed a $2.7billion cut to Medicaid.

In California, Democratic Governor Jerry Brown is counting on atax increase next year to forestall cutting $4.8 billion fromplanned spending for schools.

Rocky Mountain Higher

Even so, any revenue increase is a welcome shift. WhenMichigan's Snyder took over last year, his first budget contendedwith a $1.5 billion deficit. The state is now looking at asurplus.

In New Jersey, Christie proposed a $32.1 billion budget on Feb.21 that would cut income taxes 10 percent and raise spending $2.4billion over the budget he signed in June. The governor's budgetwould more than double to $1.1 billion the state's pension paymentand increase school aid by $213 million.

Colorado Governor John Hickenlooper has recommended restoringpreviously proposed cuts over two years that include $97 millionfor primary and secondary education and $30 million for collegefinancial aid.

“We are able to recommend all of this because the economy hasshown welcome improvement,” Hickenlooper said in a pressstatement.

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