Out of Control Policy Blog

New NCSL Report: States Face Deep Fiscal Problems for 4-5 Years

The National Conference of State Legislatures has released its State Budget Update: July 2009, and the fiscal outlook for states continues to worsen (emphasis mine):

2009 will mark one of the most difficult years in history for state budgets. The fiscal challenges are enormous, widespread and, unfortunately, far from over.

Lawmakers in virtually every state scrambled to keep their fiscal year (FY) 2009 budgets balanced while at the same time struggling to enact new ones for FY 2010. Hemorrhaging revenues drove the massive difficulties they faced. No matter how pessimistic revenue forecasts were, actual collections seemed to come in lower. This happened over and over and over again. Ultimately, states were not just faced with lower revenue growth rates, they confronted year-over-year declines in actual collections.

The worsening revenue situation produced gaping budget holes. Lawmakers closed a cumulative shortfall that reached $113.2 billion for FY 2009. But as bad as that situation was, the circumstances for FY 2010 already are worse. As lawmakers assembled their FY 2010 budgets, they faced a staggering gap of more than $142.6 billion. That is the total shortfall states had to close as they enacted their new budgets. It does not include any new gaps that may open after the fiscal year begins. [...]

Some might think that state lawmakers are uttering a collective sigh of relief now that most have their new budgets in place, but that is not the case. Dread is more like it. If FY 2010 budgets follow a pattern similar to the ones in the past two years, new gaps will emerge after the fiscal year begins—in fact, some states already are reporting new shortfalls just weeks into the new fiscal year. If that was not enough, lawmakers in many states already see budget gaps looming in FY 2011 and FY 2012. [...]

Severe revenue failures are generating a lengthy chain of acute budget gaps. Because the current state fiscal crisis began in FY 2008, many states are looking at a minimum of four to five consecutive years of deep fiscal problems, and maybe more.

The press release for the new NCSL report was much more succinct:

FY 2009 can be summed up in one word: dismal.
FY 2010 can be characterized by two words: even worse.

Agreed. The report has a few handy datapoints that help to put the ballooning state budget gaps in perspective:

  • FY 2008 (final): closed $12.8 billon cumulative deficit (19 states and Puerto Rico)
  • FY 2009 (pre-enactment, April 2008): closed $40.3 billion cumulative deficit (31 states and Puerto Rico)
  • FY 2009 (fiscal year underway, July 2009): additional $73 billion cumulative deficit (43 states and Puerto Rico)
  • FY 2010 (pre-enactment, July 2009): estimated $142.6 billion cumulative deficit (44 states and Puerto Rico)
  • FY 2011 (pre-enactment, July 2009): estimated $58.5 billion cumulative deficit (30 states and Puerto Rico; only 24 states reporting preliminary estimates)
  • FY 2012 (pre-enactment, July 2009): estimated $21.1 billion cumulative deficit (15 states; only 9 states reporting preliminary estimates)

These numbers are steadily worsening, growing deeper than what was reported in the previous April NCSL report (blogged here). With few budget gimmicks remaining and a deep public distaste for higher taxes, states are going to need to get serious about cutting programs, prioritizing spending and privatizing public services if there's any hope of reducing the price of government to deal with this fiscal crisis.

Leonard Gilroy is Director of Government Reform


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