No two state budgets are alike. States have different budget
cycles, different ways of preparing revenue estimates and
forecasts, different requirements concerning their operating and
capital budgets, different roles for their governors in the budget
process, and different policies concerning the carrying over of
operating budget deficits into the next fiscal year. Although no
two state budgets are alike, all 50 states have experienced fiscal
stress in recent years, especially during FY2009 and FY2010. The
national economic recession, which officially lasted from December
2007 to June 2009, led to lower levels of economic activity
throughout the nation and reduced state tax revenues. State tax
revenues from all sources, including sales, personal, and corporate
income tax collections, fell from $680.2 billion in FY2008 to
$609.8 billion in FY2010, a decline of 10.3%. The decline in state
tax revenue, coupled with increased demand for social services and
state-balanced operating budget requirements, created what the
National Association of State Budget Officers (NASBO) characterized
as "one of the worst time periods in state fiscal conditions since
the Great Depression." States closed nearly $230 billion in state
budget shortfalls in FY2009 and FY2010; and $146.3 billion in state
shortfalls in FY2011 and FY2012. State fiscal conditions improved
during FY2011 and FY2012, and are projected to continue to improve
in FY2013. However, states continue to experience fiscal
challenges. For example, although state general fund revenue is
projected to surpass pre-recession levels in FY2013 by about $13
billion (from $680.2 billion in FY2008 to $692.8 billion in
FY2013), total general fund spending is projected to remain below
pre-recession levels in FY2013 (from $687.3 billion in FY2008 to
$681.3 billion in FY2013). State budget officers predict continuing
budgetary challenges in virtually all states in FY2013, in part due
to slow state revenue growth, the withdrawal of temporary federal
assistance provided through P.L. 111-5, the American Recovery and
Reinvestment Act of 2009 (ARRA), the need to replenish reserves,
and increased costs for health care and other social services.
Congressional interest in state budgetary finances has increased in
recent years, primarily because state action to address budget
shortfalls, such as increasing taxes, laying off or furloughing
state employees, and postponing or eliminating state infrastructure
projects, could have an adverse effect on the national economic
recovery. For example, Federal Reserve Board Chairman Benjamin
Bernanke stated on March 2, 2011, that the fiscal problems of state
and local governments have "had national implications, as their
spending cuts and tax increases have been a headwind on the
economic recovery." Also, if states reduce their service levels
there could be additional pressure for the federal government to
provide those services. As funding from ARRA expires, there could
be additional pressure for the federal government to provide
additional federal assistance to states. This publication examines
the current status of state fiscal conditions and the role of
federal assistance in state budgets. It begins with a brief
overview of state budgeting procedures and then provides budgetary
data comparing state fiscal conditions in FY2008 to FY2011. The
data indicate that (1) states reduced their general fund budgets
from FY2008 to FY2011, but, because they received increased federal
funding, increased their total amount of spending; (2) the share of
total state expenditures held by the states' four operating
expenditures budgets (general fund, federal funds, other state
funds, and bonds) shifted from FY2008 to FY2011, with an increased
reliance on federal funds; and (3) states experienced varying
levels of fiscal stress from FY2008 to FY2011. This publication
concludes with an assessment of the consequences current levels of
state fiscal stress may have for the 113th Congress.
General
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