Out of Control Policy Blog

State Budget Outlook Worsening

The National Governors Association and the National Association of State Budget Officers recently released their October 2008 State Economic Review, and the outlook is increasingly bleak:

By and large, states are struggling. Although 8 to 10 states – mostly energy and farm states – currently have stability in their state budgets, most other states are witnessing significant revenue declines. In fact, 24 states have publicly reported current shortfalls totaling $26.5 billion or more for fiscal year 2009–and that was before the liquidity crisis. With most economists projecting negative growth over the next several quarters, state budget shortfalls are expected to grow dramatically during the year and could double the current estimate. To close shortfalls to date, many states have drawn down rainy day funds and are making major cuts in programs including elementary, secondary and higher education, as well as welfare and Medicaid. [. . .]

In short, states will face a very difficult fiscal outlook over the next two to three years, and the decline may be deeper and longer than any they have witnessed during the last 30 years.

With fiscal conditions bad already and getting worse, seeking creative ways to do more with less—including privatization and public-private partnerships—is going to become the modus operandi in many state capitals. (more on that here, here, here and here)

In one bright spot, NGA/NASBO's review cites a Moody's job forecast that sees job losses in most regions of the country throught the first two quarters of 2009, but returning to growth in the third quarter of 2009. Well worth a read.

» Reason's Annual Privatization Report 2008
» Reason's Privatization Research and Commentary

Leonard Gilroy is Director of Government Reform


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