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Good fiscal news is arriving in state capitals: Tax revenues are finally starting to recover from their four-year swoon.

The bad news: States face pressure to meet increasing health-care costs and to replenish rainy-day and other funds legislatures tapped in recent years.

The bottom line? Schools will have to fight for significant increases in next fiscal year鈥檚 budgets, according to lawmakers and analysts preparing for the 2005 legislative sessions, some of which begin this week.

鈥淚n education, you鈥檇 be lucky to get [increases equal to] inflation,鈥� said Wisconsin state Sen. Robert Jauch, a Democrat.

鈥淓very state is facing this challenge,鈥� Mr. Jauch said in an interview last month at the National Conference of State Legislatures鈥� fall conference in Savannah, Ga. 鈥淭he question is: Will local funding go up and to what degree?鈥�

School funding will be at the center of debates over how to spend money when all 50 state legislatures convene this year. In an annual 50-state report released in December by the NCSL, budget officers in 26 states said that funding of K-12 education would be one of the top three priorities in the upcoming sessions.

In a separate survey conducted late last year by the 91制片厂视频 Week Research Center, state education officials in 31 states said their states were considering major changes to the way they finance schools.

Legislatures in several of those states face court orders to revamp their school aid systems. Montana, New York, and Texas are among the states that will debate revising their funding formulas to comply with court orders. (鈥淪tates on Ropes in Finance Lawsuits,鈥� Dec. 8, 2004.)

In Arkansas, the legislature must establish a capital-improvement program under a 2002 decision by the state supreme court. A recent estimate put the cost of the improvements to school facilities as high as $2.3 billion. (鈥淎rkansas Facilities Study Sees $2.3 Billion in Needs,鈥� Dec. 8, 2004.)

Others states face questions over how to keep the promises to increase school spending.

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In California and Florida, legislators will seek money to pay for voter-approved educational improvements鈥攖he most costly of which will likely be Florida鈥檚 class-size-reduction and pre-K programs. (鈥淔lorida Special Session Yields Preschool Plan,鈥� this issue.)

Maryland鈥檚 legislature faces the challenge of financing the fourth year of a six-year commitment to add $1.3 billion to K-12 education.

And a panel appointed by Ohio Gov. Bob Taft will soon recommend major changes in the way the Buckeye State financially supports its schools.

Fiscal Rebound

For the first time since fiscal 2001, nearly all state lawmakers will arrive for their legislative sessions and receive favorable revenue forecasts.

In its survey, the NCSL found that only four states expect to face revenue shortfalls for the current fiscal year.

By comparison, 15 states had to cut their budgets in the middle of fiscal 2004, according to a separate report by the National Governors Association and the National Association of State Budget Officers, also released in December.

In fiscal 2003, 40 states had to trim their budgets in the middle of the fiscal year, the report by the two Washington-based groups says. Still, analysts agree that legislators will need to be stingy as they spend money for fiscal 2006, which begins July 1 for all but four states.

鈥淓ven though the overall fiscal situation seems to be getting better in many states, most are still keeping expenditures reined in, especially considering pent-up demand that resulted from the recent fiscal crisis,鈥� the NGA and NASBO say in 鈥淭he Fiscal Survey of the States: December 2004.鈥�

The biggest budget dilemma for states is Medicaid. Spending for the health-insurance program serving people with low incomes continues to outpace other costs in state budgets, both reports say.

Although Medicaid is a federal program, states are required to pay some of its costs, and state officials are complaining that the federal government has been paying a smaller share in recent years. States鈥� Medicaid costs will increase an estimated 12 percent in fiscal year 2005, compared with fiscal 2004, the NGA and NASBO estimate. Of the budget officials surveyed by the NCSL, 30 said Medicaid would be one of the top three priorities in their upcoming budget debates.

Indeed, an earlier report by NASBO projected that Medicaid spending in the current fiscal year would, for the first time, become a larger component of total state spending鈥攚hich includes federal funds鈥攖han elementary and secondary education.

For school leaders, the situation is likely to present big challenges in the months ahead.

鈥淭he districts have done all the cutting they can,鈥� said Scott Croonquist, the executive director of the Association of Metropolitan School Districts, a group that represents 26 school districts in and around Minnesota鈥檚 Twin Cities. The districts enroll about a third of the state鈥檚 847,000 pre-K-12 students.

鈥淭hey feel like they are at the end of the line 鈥� without gutting core programs,鈥� he added.

Elsewhere, California school officials are lobbying state legislators to appropriate money in compliance with a 1988 ballot measure that promises schools funding hikes equal to inflation and enrollment increases.

After several years of massive budget deficits, Gov. Arnold Schwarzenegger, a Republican, negotiated a deal with school groups and state leaders last summer that cut more than $2 billion from the guaranteed minimum funding level in the fiscal 2005 education budget, which totaled $49.2 billion. The agreement stipulated that education would receive a portion of any new or increased revenues in the coming year.

Long-Term Remedies

With the state鈥檚 revenue picture improving, California schools expect a significant increase in funding during revisions this fiscal year and in fiscal 2006, says a coalition of groups representing teachers, school districts, and school boards.

鈥淲e鈥檙e reminding the governor of the promise he made and making sure the public is aware of the situation,鈥� said Hilary McLean, the spokeswoman for state Superintendent of Public Instruction Jack O鈥機onnell. 鈥淚t puts the big picture in perspective.鈥�

In other states, meanwhile, lawmakers are committing to long-term fixes to school finances.

Kansas is expected to collect about $80 million above its fiscal 2005 revenue projections, said Sen. John Vratil. And revenue forecasts for fiscal 2006 are $200 million higher than previously expected, he added.

Legislators will need all of that鈥攁nd probably more鈥攊f the state supreme court requires them to increase school funding.

The expected additional revenue is 鈥減robably not enough to rectify the school finance problem, even if every dime of it鈥� is spent on schools, said Sen. Vratil, a Republican and the vice chairman of the Senate education committee.

Maryland faces a similar situation. Revenues are increasing, but not quickly enough to keep up with both health costs and K-12 needs. Under a 2002 law, the state is scheduled to increase K-12 funding by $382 million for fiscal 2006鈥攁n 11 percent increase over the current budget.

Meanwhile, the state鈥檚 costs for Medicaid expenses and health-insurance costs for state employees are growing, leaving Maryland with a projected $500 million shortfall in fiscal 2005, said Sen. Patrick J. Hogan, a Democrat.

鈥淭hose things are putting incredible pressures on the budget,鈥� said Mr. Hogan, the vice chairman of the Senate budget committee.

To raise the money, the Maryland legislature will once again debate Gov. Robert Ehrlich鈥檚 plan to install slot machines at horse-racing tracks. The proposal by the first-term GOP governor passed the Senate each of the past two years but died in the House.

In other states, legislatures face debates over raising taxes or imposing new ones.

鈥淭here鈥檚 heavy pressure for no new taxes,鈥� Mr. Vratil said, 鈥渂ut there鈥檚 also heavy pressure for additional services and programs.鈥�

In Minnesota, if the state is unwilling to increase taxes, school districts will seek authority from the legislature to do so on their own. Right now, voters must approve property-tax rates. School boards, though, would like the power to raise taxes on their own, Mr. Croonquist said.

Although the funding picture is improving, states鈥� revenue still hasn鈥檛 reached the level of its peak at the start of the decade.

Fiscal 2005 revenue will be about 94 percent of that in fiscal 2000, an expert in state revenues told the attendees at the NCSL鈥檚 conference last month.

鈥淲e鈥檙e still a couple years away from getting back to where we were,鈥� Nicholas W. Jenny, a senior policy analyst at the Nelson A. Rockefeller Institute of Government in Albany, N.Y., said at the NCSL meeting in Savannah.

鈥淭his is part of the reason states are having so much trouble getting their budgets to work,鈥� he said. 鈥淩evenues just aren鈥檛 what they were.鈥�

Staff Writer Joetta L. Sack contributed to this report.