But many challenges loom, as they have since before the recession. A 2007 study by the Government Accountability Office was titled "State and Local Governments: Persistent Fiscal Challenges Will Likely Emerge Within the Next Decade." This spring the office warned that the continuing near-term and long-term state and local government challenges "add to the nation's overall challenges," noting that the problem was largely driven by rising health care costs.
And some states are still in considerable fiscal distress. Illinois, which still faces large backlogs of unpaid bills, the weakest pension system of any state and the lowest credit rating of any state, failed to approve an overhaul of its pension system this week. As time was running out in its state legislative session, some leaders in the Democrat-controlled Capitol were pleading for a last-ditch plan to address the state's pension crisis. The system was in bad shape even before the financial crisis of 2008 struck, and now it requires an ever-bigger slice of the state budget every year to meet its promises.
Donald J. Boyd, a senior fellow at the Nelson A. Rockefeller Institute of Government, in Albany, said states still face enormous costs to pay for the obligations they have made. "I know a lot of people are pinning their hopes and mantras on the idea that an improved stock market will bail pension funds out, but it will take so much more than we have seen — and the risk to governments, if it goes wrong, is frightening," he said.
In some states the surpluses may reflect an improving economy, but in many they are the result of the tough steps taken during the downturn, which included making deep cuts to services; furloughing, laying off and reducing the benefits of workers; delaying repairs to roads and bridges; and raising taxes.
To some extent, said Scott D. Pattison, the executive director of the budget officers' group, the current surpluses are a reflection of the way that the states' annual revenue forecasts grew more conservative during the downturn and slow recovery. "It's more a function of there being more money than they thought there would be," he said, "and not a signal that their financial challenges are over."
Now the surpluses have spurred debate in statehouses around the county, with some officials seeking to restore services and rehire workers, and others pushing new tax cuts. Governors from both parties, though, find themselves urging restraint as their states climb back from the recession.
Barry Anderson, the deputy director of the National Governors Association, used a homespun analogy for the situation that many states find themselves in. "I can see Mom and Dad at the kitchen table," he said, "saying: 'Wow, we did a little better than we anticipated here — but let's not go out and blow it all, let's set it aside. Because we know, not only do we need a new car, or to take care of the leaks in the basement, but Johnny and Joanie are going to need insurance coverage.' "
Rising health care costs continue to pose one of the biggest challenges to states, and the trend has many governors concerned.