27 States Faced Total Budget Shortfall of At Least $47 Billion in 2009; 4 Others Expect Budget Problems

Publication Date: May 2008

Publisher: Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): Elizabeth C. McNichol; Iris J. Lav

Research Area: Banking and finance; Economics

Keywords: Economic projections; Fiscal future; Recession; State budgets

Type: Brief

Abstract:

At least 27 states plus the District of Columbia, including several of the nation’s largest states, faced or are facing an estimated $47 billion in combined shortfalls in their fiscal year 2009 budgets. Two other states also face shortfalls for fiscal year 2009 (which begins July 2008 in most states) but the size of their shortfalls has not been estimated, bringing the total number of states that faced or are facing shortfalls for FY2009 to 29. The vast majority of states cannot simply run a deficit or borrow to cover their operating expenditures. As a result, states have three primary actions they can take during a fiscal crisis: they can draw down available reserves, they can cut expenditures, or they can raise taxes. States already have begun drawing down reserves; the remaining reserves are not sufficient to allow states to weather a significant downturn or recession. The other alternatives — spending cuts and tax increases — can further slow a state’s economy during a downturn and contribute to the further slowing of the national economy, as well.