State budgets got healthier in fis-cal 2006, but officials are keeping an eye on stresses from Medicaid, pensions and old infrastructure, says a report from the National Governors Association and the National Association of State Budget Officers.

The latest Fiscal Survey of the States, released Dec. 13, says that “realizing the inevitable cyclical nature of the economy, states are cautious.” They are projecting to raise general-fund spending an average of 7% in fiscal 2007, down from 8.7% last year. Increases averaged 6.4% annually over the 1979-2007 period.

In 2006, only Indiana and Louisiana cut budgets in midyear, compared with 37 such reductions in 2003, says the study, which is based on a fall 2006 survey.