U.S. Forecasts Highest Tax Revenue in 5 Years

The Commerce Department said Wednesday that the economy contracted at an annual rate of 0.1 percent in the fourth quarter.

"Forget the number: It says nothing about the state of the economy," says one economist.

Associated Press + More

[Read: Making "cents" of Your

Even as tax receipts at the state level have recovered, states are facing greater demand for services. That means budgets will remain tight and hiring isn't likely to pick up.

Dan Crippen, executive director of the NGA, said high unemployment is forcing millions of people to join or remain on Medicaid, the joint federal-state health care program for the poor. That's placing big demands on states, which boosted Medicaid spending 20 percent this year.

"We're not seeing the rolls drop off as much as you might expect," Crippen said. And states expect to spend more on K-12 education next year, he added.

Medicaid will cover 5.6 million more people this year than in 2008, according to the Center for Budget and Policy Priorities, a liberal research group. States will also have to educate 350,000 more K-12 students and 1.7 million college and university students, the center estimates.

__

Associated Press Writers Kathy Barks Hoffman in Lansing, Mich. and Andrew Welsh-Huggins in Columbus, Ohio contributed to this report.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.