State Budgets: Fight to the Finish
 Revenue shortfalls, supermajority requirements for budget and tax increase approvals, too much decision making authority put on voters – the Los Angeles Times says all are being blamed for the frenzied race to the finish states are faced with to finalize budgets. AO examines why the grueling challenge won’t go away.
While the 11th hour battle being waged in state capitols across the nation may yet produce more finalized budgets before FY 2010 begins tomorrow, a Center on Budget and Policy Priorities report seems to assure there will be no big winners.
“Of the roughly two-thirds of states that adopted fiscal year 2010 budgets before last week, 12 reported that shortfalls totaling $23 billion have opened up that will require action during the year to restore balance,” the CBPP noted in “New Fiscal Year Brings Spending Cuts, Continued Budget Gaps in Almost Every State.”
State budget gaps are projected to exceed $166 billion in FY 2010 and $350 billion through 2011.
General Fund Spending Down
The National Governors Association and the National Association of State Budget Officers, in their 32nd annual Fiscal Survey of the States, noted that for the first time in the history of the survey total state spending is down for two years in a row. According to the survey, General Fund spending declined 2.2 percent in FY 2009 and will drop 2.5 percent in FY 2010.
Impact of Stimulus Dollars
As dire as the current situation is, federal stimulus aid has blunted the impact, closing 30 to 40 percent of state budget gaps, according to the CBPP.
But when the federal money runs out, states could still be left with a gap in FY 2011-12 of more than 6 percent of states’ expenditures or more than $100 billion, according to the Nelson A. Rockefeller Institute of Government.
Contributing Factors
Besides the revenue shortfall wrought by the recession and the inherent political system design and requirements noted by the Los Angeles Times, aspects that have amassed spending initiatives faster than new revenue sources, other factors that explain the current predicament include: past experience, population growth, and demographics.
Spending by all states combined has never fully recovered from the 2001 recession, the CBPP says. “In 18 states, general fund spending for FY 2008 – six years into the economic recovery – remained below pre-recession levels as a share of gross domestic product,” it notes.
Population Growth, Aging
As Americans look to government for more social services, health services, and support for education, they need to keep in mind how the population is growing – and changing. And this is creating what the California Budget Project has called “a structural imbalance between the cost of programs and services and the revenues raised by the state’s tax system.”
In a May 2009, 72-slide PowerPoint presentation, “Uncharted Waters: Navigating the Social and Economic Context of California’s Budget,” the CBP highlights the growth that has occurred in demand for services.
Specifically, between December 2007 and December 2008, the number of Californians receiving food stamps increased 17 percent – more than double the rate the prior year. Demand for services under the Healthy Families Program and CalWORKS – in essence, the so-called societal safety net – increased 5.5 percent and 6.6 percent, respectively, year-over-year.
Changing demographics also contribute to making demand for services more acute. Since 2000, California’s total population has increased 13.0 percent and the fastest growing segment of the state’s population – now and projected through 2020 – is people over 65 years of age.
Across the Board Cuts
In the presentation, the CBP tries to convey the immense size of California’s budget gaps by noting that closing the gap would require the elimination of many social service programs, as well as general fund support for corrections, higher education and more.
And this is exactly what most states – not just California – are experiencing.
At least 39 states have cut services related to public health, the elderly and disabled, K-12 education, and higher education, and made reductions in state workforce, notes the CBPP.
Public health services have fared the best, with only 21 states making cuts in this area. Higher education has seen cuts in 32 states, while 41 states have reduced their workforces.
States that have made cuts in all areas include Arizona, California, Florida, Georgia, Maine, Maryland, Rhode Island, South Carolina, Utah, and Washington State. |
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