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NCSL Reviews State Budgets Situation

2 min readBy: Joseph Bishop-Henchman

Corina Eckl, Fiscal Program Director of the National Conference of State Legislatures, gave a presentation in Philadelphia today on state budget gaps. Some highlights:

  • Government revenues usually recover only after the general economic recovery. However, in some states, budget projections assume that 2009 was the revenue bottom.
  • The current recessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years. has lasted 19 months so far, longer than any recession since the 1929-1933 one that became the Great Depression.
  • Several states’ revenue levels are down to the revenue level from 2005 or 2006. Florida revenue is down to 2001 levels. Michigan revenue is down to 1988 levels.
  • Property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. collections have remained stable (between 2% and 5% growth each year since 2004), but income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. collections are less stable, ranging from +9.5% to -4% annual change since 2005.
  • In 35 states, the FY 2010 budget shortfall (continuing committed services vs. projected revenue) was at least 10% of the budget. For 12 states, it was at least 20%.
  • From a survey of 36 states, taxes have increased by $24.3 billion in FY 2009. Income tax hikes (probably mostly on high-income earners -JH) make up $10.6 billion of that total.
  • Tax hikes in 2009 equal 3.1% of the previous year’s revenue, marking the eighth consecutive year of net tax increases and the largest since 1991.
  • During 2009, states closed $40 billion of budget gaps in enacting their budgets, only to see $72.9 billion in new gaps open up during the year. For 2010, states have closed $142.6 billion of budget gaps in enacting their budgets (California is a big share of this).
  • Federal stimulus funds going to states total $96.9 billion in 2010, tapering off to $50.6 billion in 2011 and $12.5 billion in 2012. States that used the money to avoid spending cuts or tax increases will thus face a “cliff” after next year if the economy has not yet recovered. Even an immediate economic recovery is unlikely to be enough to make up for the loss of federal funds.

The NCSL reports are here and here, and also check out our previous state budgets podcast with Ron Snell of NCSL here. Also see our state budgets report, “State Budget Shortfalls Present a Tax Reform Opportunity.