This report summarizes the status of states' budgets at the end of fiscal year 1997. The year's strong national economy boosted tax revenues and helped to decrease welfare rolls. Unemployment at the end of 1997 was below 5 percent nationally and real GDP growth was 3.5 percent for the first 3 quarters of the year. These indicators translate into good news for states as most of them realized surpluses at the end of fiscal year 1997 and higher-than-expected revenues at the beginning of fiscal year 1998. In light of the strong economy, most states cut taxes; however, Hawaii did not finish the year in strong financial condition. Overall, 34 states decreased taxes and 14 states increased taxes during 1997 legislative sessions. Most of the tax cuts tended to be relatively small and are scheduled to be phased in over several years. The personal income tax was the most popular tax to cut, with 22 states doing so. A combination of continued optimism in the economy, revenue collections exceeding expectations, and election-year politics may result in even more tax cuts in 1998. The report also speculates as to state budgets and finance for 1998. Two tables are included. (Contains 19 endnotes). (LMI)