States across the country are reporting brighter expectations for their budgets in the coming fiscal years, but remain vulnerable to potential and unpredictable swings in the economy, according to a report released this morning by the National Conference of State Legislatures.

The report found that tax revenues for many states are growing and budget gaps relative to prior years are being reduced.

In New York, for example, the state’s budget gap for the coming 2013-14 fiscal year is expected to be $982 million, up slightly from a projected $950 million from since the latest budget took effect on April 1.

For now at least, that’s the first projected deficit in state spending that’s under $1 billion after several budget cycles of huge gaps that reached as high as $10 billion.

But challenges remain especially for New York, a state the relies heavily on Wall Street revenue and is prone to the ups and downs of the world financial markets.

The report says New York’s budget outlook is marked “concerned” because of the ongoing European debt crisis and a potential surge in foreclosures.

“State budgets remain susceptible to any economic shocks. The uncertainty at the federal budget level and Medicaid spending are a concern,” said William Pound, executive director of NCSL. “The bottom line: State budgets still face considerable challenges.”

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