State of a nation

US State budgets

America is facing a harsh reality. In the shadow of the worst economic crisis since the 1930s, many states are now facing the largest budget gaps on record. As such, economists are predicting that many states will continue to struggle to find the revenue needed to support critical public services for a number of years to come.

For 35 states, new shortfalls have already opened up in those state budgets for the current fiscal year (which began 1 July in most states), and initial indications suggest that states will face shortfalls as big as - or bigger than - those that they are currently facing for the next fiscal year (which will begin July 2011).

California and Arizona are both facing a particularly bleak outlook, with their budget gap accountable for 56.2 percent and 53 percent of their general fund budget, respectively.

In fact, as the fiscal year approaches its midway point, many states are having to address extraordinarily large shortfalls as they develop and implement spending plans for the remainder of this fiscal year.

The accompanying infographic details how the states' budget gaps are shaping up, and details just how close to a potential crisis some states really are.

Mind the gap

According to the Center on Budget and Policy Priorities (CBPP), about 20 states have already taken actions to close their mid-year gaps. Largely, the actions are all associated to spending cuts, raises in taxes and reduced funding policies - though some analysts are critical that current budget difficulties have led many states to reduce services to their residents, including some of their most vulnerable families and individuals.

Those listed by the CBPP as having taken action are: Alabama, Arkansas, Colorado, Connecticut, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Maryland, Massachusetts, Mississippi, Missouri, New Jersey, New Mexico, Oklahoma, South Carolina, Vermont, and Virginia for part of its deficit. The organization also highlights that the District of Columbia has acted.

Reports highlight that the majority of these actions were taken by governors, who reported used their powers to make cuts to maintain budget balance.

The report goes on to state that, of these states, Alabama, Georgia, and Mississippi, have cut K-12 education funding; Idaho and New Mexico have cut higher education; Colorado and Indiana have cut Medicaid provider rates; Massachusetts' governor has announced cuts to TANF, school transportation, child care, and mental health services, and has proposed some additional revenues; and employee layoffs and furloughs in Georgia, Hawaii, Iowa, Maryland, Missouri, New Mexico, and Virginia.

In addition, five further states have proposals pending for various types of cuts or tax increases: these are Colorado, Nebraska, New York, Ohio, and Virginia for part of its deficit. Reports show that these pending cuts include a very large cut in aid to local governments in New York; the report also adds that Ohio's governor has proposed delaying a previously enacted income tax cut, a proposal that has passed one house of the state's legislature.

The remainder of the states are reportedly waiting to deal with their 2010 deficits in the context of their fiscal year 2011 budget proposals that currently are being prepared. In fact, some states are preparing to hold special sessions in order to prepare for the cuts.

How bad will it get?

The biggest concern of all, however, is in looking forward to 2011 and beyond. The report warns that, despite the fact that the economy appears to be moving in the direction of recovery, states' fiscal prospects remain extremely weak. Current economic projections suggest 2011 will be worse than 2010. In the early 2000s, as in the early 1990s and early 1980s, state fiscal problems lasted for several years after the recession ended; the same will undoubtedly be the case this time around.

Related Articles:

Bailout assessment looking up | Wall Street drops overdraft fees | Bank chiefs summoned to White House

Like this article? Get the RSS feed: