States and their Budgets

While observing that California’s state legislature missed its June 15th state budget deadline once again, you might wonder how other states are fairing with their budgets during these difficult economic times. Fiscal year 2010 will end on June 30th in 46 states. Except for Vermont, every state has some sort of balanced-budget law. We at LIS have researched our share of budget bills and know that the legislative process underlying these bills, whether state or federal, is complicated by issues involving politics, mandates, and economic realities, just to name a few. Below, we point out some of current economic realities affecting states’ budget bills this year.

The Bad News: In general, other states budgets are not fairing well. The main factors for the gaps in the 2010 state budgets are deteriorating revenues, shortfalls from prior budget years, and declining federal aid to states [the American Recovery and Reinvestment Act funds are mostly gone]. Also, unemployment remains at high levels for states which will keep state income tax receipts at low levels. Increased demand for Medicaid and future state-wide economic uncertainty will also tax the revenue gaps. The Center on Budget and Policy Priorities is predicting significant shortfalls in states’ budgets running into the billions of dollars. These billion-dollar-shortfall states are Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Pennsylvania, So. Carolina, Tennessee, Texas, Virginia, and Wisconsin. Unfortunately, the Center is also predicting that 2011 will be worse unless faster-than-expected recovery occurs given also that there will be less federal money available to close budget gaps. Cuts to state services are the first line of defense to the budget shortfalls burdening the states. For example, there were 42 states that reduced overall wages or laid off state employees, 30 states that cut health care services, 25 states that reduced services to the elderly and disabled, 30 states that cut K-12 education, and 41 states that cut higher education.

The Not-As-Bad News: The Rockefeller Institute challenges the above-noted level of dire news on states budgets, publishing recently it found overall state tax revenues grew by 2.4% in the first quarter of 2010, compared to the same quarter in 2009, and personal income tax revenue increased by 2.7% for the nation. The Institute stated: “This is the first time since the third quarter of 2008 that states are reporting growth in tax collections on a year-over-year basis. Such growth is mostly attributable to revenue growth driven by legislated charges in two states alone – California and New York.” The report noted the realities of the weak economy, observing that state revenues were still significantly below pre-recession levels, and the important April collections from income taxes showed a 7.6 percent year-over-year decline.