NCPA - National Center for Policy Analysis

States Suddenly Confronted By Revenue Declines

February 8, 2001

In just the last two weeks, the slowing economy has sharply reduced state tax revenues in as many as 15 states. And the states -- primarily in the South and Midwest -- are suddenly facing spending cuts of up to 15 percent, producing the first cuts in education and health-care programs in a decade.

  • Tax revenues in South Carolina have fallen $513 million short of projections for the current fiscal year.
  • North Carolina is facing a $740 million budget deficit.
  • Missouri's budget is $307 million short, while Iowa has a $140 million gap and Kansas is weighing a series of spending cuts.
  • Michigan's state agencies have been told by Gov. John Engler to cut half a percent out of their budgets.

Observers say that circumstances differ in each state. But for the most part the reductions are caused by lower-than-expected sales tax revenue in December and January. States that depend on income and property taxes have yet to feel the pinch.

But if the economic slowdown produces wide-spread layoffs, experts predict, income tax revenues will likely fall too.

States reported their highest year-end balances in 20 years last June. And as recently as January 4, the National Conference of State Legislatures issued a report on the fiscal prospects for the states which was almost entirely rosy -- with only six states considered likely to have budget problems.

Source: David Firestone, "Slowing Economy Forces Governors to Trim Budgets," New York Times, February 8, 2001.


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