By Jeff Carlson, CCH Washington Staff Writer

Governors have responded to strong state economies by enacting moderate tax cuts, moderate spending increases, and maintaining adequate year-end balances for fiscal 2000, according to a report released this January by the National Governors' Association (NGA) and the National Association of State Budget Officers (NASBO).

The report showed that Governors have held state spending to an average of 5.3 percent over the past five years, well below the 1979-2000 average of 6.8 percent. General fund spending increases are estimated at 5.5 percent for fiscal 2000, lower than the 7.7 percent increase in fiscal 1999 and the 5.7 percent increase in fiscal 1998.

While education spending continues to dominate state spending, rising health care costs now represent more than 25 percent of most state budgets.

Since 1993, Medicaid alone has been the second largest component of state spending. In fiscal 1999, Medicaid spending increased by almost 5 percent (as opposed to increases between 3 percent and 4 percent in 1996 and 1998). In addition, recent Congressional Budget Office (CBO) estimates forecast an increase of 7.5 percent for fiscal 2000.

According to the report, Fiscal 2000 is the sixth consecutive year in which Governors reduced state taxes and fees. Net tax and fee changes for fiscal 2000 will reduce state revenue by $5.2 billion and total $27.3 billion over this six-year period. In contrast, net state tax reductions occurred only twice in the 1980s.

Most of the fiscal 2000 tax reductions focus on reducing the personal and corporate income, sales and property taxes. Forty-two states enacted net tax and fee reductions for fiscal 2000.