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U.S. states greet new fiscal year with more spending, school funding

WASHINGTON (Reuters) - Days before most U.S. states' new fiscal year begins, 40 states have passed budgets that boost spending and dedicate extra funding primarily for education, according to a brief released on Friday by the National Association of State Budget Officers.

But in many states spending increases and tax cuts are not as dramatic as their governors proposed this winter, due to softer-than-expected revenue, NASBO found. Typically, governors suggest budgets in January that legislatures use as starting points to negotiate.

States have primarily increased education funds by changing school finance formulas, raising amounts for early education, and tying higher education funding to performance measures, it found.

At the same time, they have also increased funds for Medicaid, the health insurance program for the poor, and other healthcare areas such as mental health.

In their budgets for fiscal 2015 some also cut taxes - mainly business and property taxes.

States had anticipated revenue growth to slow or even flat-line this year. At the end of 2012 taxpayers had reacted to impending changes in the federal tax code by "accelerating" their income to take advantage of lower levies. That boosted personal income tax collections for states last year, but the bulge ended this year.

Meanwhile, economic growth in the first quarter of 2014 fell off in some states.

"The decline in revenue has caused several states to reduce spending increases for certain programs, enact smaller tax cuts, delay pay raises, and has led to smaller ending balances for fiscal 2014," NASBO said. "Additionally, in some states governors have made line-item vetoes to ensure that the budget remains in balance for fiscal 2015."

For 46 states, fiscal 2015 starts on July 1, and 40 of those states have enacted their budgets. Massachusetts and Pennsylvania are the most behind - their legislatures have not yet finalized budgets. In Delaware, Illinois and New Jersey, legislature-approved budgets are awaiting governors' signatures. North Carolina's legislature is debating adjustments to the previously passed biennium budget.

(Reporting by Lisa Lambert; editing by Matthew Lewis)

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