In a preliminary review of the biannual report The Fiscal Survey of States, officials from the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO) forecasted continued fiscal difficulties for states.
The press release states:
In fiscal 2009, states were forced to reduce General Fund expenditures by 4.8 percent and are expected to reduce fiscal 2010 General Fund expenditures by at least 4.0 percent, marking the first time that state spending has declined in back to back years. The severe national recession drastically reduced tax revenues from every revenue source during fiscal year 2009, and revenue collections are forecasted to continue their decline in fiscal 2010. As state revenue collections historically lag any national economic recovery, state revenues will remain depressed throughout fiscal 2010 and likely into fiscal years 2011 and 2012.
Overall, state revenues declined 7.5 percent in fiscal 2009, which for most states ended June 30, 2009. Revenues will likely continue on this downward trend for another one or two quarters before turning up slowly.
The weakening of state fiscal conditions is reflected in the $250 billion in budget gaps faced by states between fiscal 2009 and fiscal 2011. Of the $250 billion, states closed $72.7 billion in budget gaps during fiscal 2009 and $113.1 billion before the enactment of their fiscal 2010 budgets to bring them into balance with drastically declining revenues.
“These are the worst numbers we’ve ever seen in the decades of putting together this report,” said NASBO Executive Director Scott D. Pattison. “States have been forced to lay off and furlough employees, raise taxes, drain rainy day funds and sharply cut state spending in ways that impact every part of state government.”
Even after closing these gaps, an additional $14.5 billion in budget gaps remains in fiscal 2010, and states face at least $21.9 billion in budget gaps for fiscal 2011. To help close these gaps, 42 states cut their enacted fiscal 2009 budgets by $31.2 billion, and 33 states cut their fiscal 2010 expenditures by $53.5 billion. Additionally, states enacted tax and fee increases of $23.8 billion along with additional increases in other revenue measures of $7.7 billion for fiscal 2010.
According to an NGA analysis titled The State Fiscal Situation: The Lost Decade, the recent economic downturn, one of the deepest and longest since the Great Depression, began in December 2007. Although the recession likely ended in August or September 2009, states struggled in fiscal 2009 and will continue to struggle through most of the decade.
“States will continue to struggle over the next decade because of the combination of the length and depth of this economic downturn, the projected slow recovery and the overhang of unmet needs,” said NGA Executive Director Raymond C. Scheppach. “The unmet needs are those postponed or deferred during the crisis including, replenishing retiree pension and health care trust funds and financing maintenance, technology and infrastructure investments. States will also need to rebuild contingency or rainy day funds. The bottom line is that states will not fully recover from this recession until late in the next decade.”
The report also looks at Medicaid spending which averaged in all states 7.9 percent growth in FY 2009, its highest rate since the end of the last downturn six years ago. Medicaid enrollment is also spiking, with projected growth in all states of 6.6 percent in FY 2010 compared with 5.4 percent in 2009. Other unmet needs that are part of the “overhang” include employee retirement and benefits. According to a 2007 Pew Center on the States report, states have an outstanding liability of about $2.73 trillion in employee retirement, health and other benefits coming due over the next several decades, of which more than $731 billion is unfunded.
Texas does have a balance in its rainy day fund. Chris Cutrone, a spokesman for Governor Rick Perry responded in an email to a journalist’s request on the sales and natural gas taxes falling more than $1 billion short of projections in Texas, “Texas continues to do better than most other states thanks to our low taxes, predictable regulations, fair and balanced budget with a projected $9 billion in our rainy day fund. However, we are not immune from the national economic downturn.”
Some individuals have called for a second stimulus package while others still think the first stimulus package was a bad idea.
PLEASE NOTE: The report released above is only preliminary and does not offer details specific to each state but averages state information together. As with any economic analysis, specific details can help offer further insight.
For more information visit www.nga.org
For a copy of the preliminary report visit: http://www.nga.org/Files/pdf/FSS0911.PDF
The June 2009 Fiscal Survey of the States: http://www.nasbo.org/Publications/PDFs/FSSpring2009.pdf