In 2004, states turned an important corner on the road to fiscal recovery. Compared to previous years, revenue collections have recovered healthily, although they are not vastly surpassing budgeted estimates as they did in the late 1990s boom. The news isn’t all good, however. Expenditure pressures remain immense. Pent-up demand for spending in areas that were cut during the fiscal crisis still exists, while K–12 education and Medicaid battle each other to consume ever larger pieces of the budget pie. Federal budget deficits and their inevitable effect on domestic spending also will wear heavily on states as grants-in-aid are reduced or eliminated.