NCPA - National Center for Policy Analysis

State Budget Outlook: The Worst Isn't Over

January 19, 2011

In most states around the country, it is hard to imagine how the budget situation could get any worse.  Over the past four years, states already have had to close more than $400 billion in budget gaps through budget cuts, tax hikes, tapping rainy day funds or borrowing.  Yet as the nation's governors and legislatures prepare to write budgets for fiscal year 2012, they are bracing themselves for what is likely to be the hardest year yet in what already has been the most difficult budget period in modern history, says Stateline.

  • That is because revenues -- while up a bit now -- plunged so deeply in 2008 and 2009 that it will take years for many states to return to levels they saw before the recession.
  • Now, with the federal stimulus program expiring and the cost of paying for existing commitments such as health care increasing, states will have to make more budget cuts on top of the deep cuts that already have been made.
  • Those dynamics have state leaders contemplating actions that were once considered unthinkable, including dramatic cuts to core services like Medicaid and education.

What is not clear yet is whether these fiscal circumstances will prompt a desperate scramble to balance budgets now regardless of the long-term consequences, or whether they will prompt a thoughtful reassessment of what government should do and how it should do it.  State lawmakers are sure to scrounge for one-time money wherever they can find it, but more of them are starting to acknowledge that long-term changes will be necessary to get their budgets back on sound footing, even after the recession recedes into history, says Stateline.

Source: Josh Goodman, "State Budget Outlook: The Worst Isn't Over," Stateline, January 13, 2011.

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