States Face Fiscal and Political Turbulence

Each year, the Pew Center on the States releases its State of the States report, a nonpartisan analysis of the fiscal and political forces affecting state government.

Forecasters are predicting that state budgets will continue to be stressed for the next two to four years. Economists are expecting double-digit unemployment figures to continue through the summer, affecting both tax revenue and social services, including Medicaid. In addition, history has shown that the worst budget crunch for government takes place a year or two after a recession ends and that full recovery takes years. Federal stimulus funds provided much needed assistance in closing budget gaps for 2009, but these funds will begin drying up in 2010. Budget gaps of almost $20 billion per year are predicted through 2014.

Analysts note that the current economic crisis is hitting states harder–and lasting longer–than the recession from earlier in this decade. Revenue declines for this recession have already surpassed those experienced in 2001, and are expected to continue (see figure).

Source: State of the States 2010, Pew Center on the States
Click to enlarge

Legislators have used a variety of tactics to reduce expenses, but increasing costs have significantly hindered these efforts. Labor is state government’s largest cost; 28 states decreased the total number of state workers in 2009 and more than 20 states instituted furloughs. Other efforts to reduce expenses have included consolidating agencies, centralizing purchasing, increasing digital services and developing public-private partnerships. The fastest-growing costs of state government–Medicaid, corrections and public employee pensions–are affecting current and future reduction efforts.

Upcoming elections could alter the current political landscape. In November, 37 states will elect governors, with incumbents running for re-election in fewer than half of these races. New legislators will be elected in 46 states. In addition to dealing with fiscal issues, 2010 legislatures will also have the responsibility of redistricting.

Links

Read the full report: State of the States 2010.

Watch a video clip from PBS NewsHour, State Budgets Collapsing Under Poor Economy. This 3.5-minute segment features Susan Urahn, Managing Director of the Pew Center on the States.

Read the special report: Beyond California: States in Fiscal Peril

This report, also from the Pew Center on the States, focuses on the fiscal crises affecting states particularly affected by the recession: Arizona, California, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin.

If you would like to talk to a NASAA staff person about state budgets, contact Angela Han.