Robert Jay Dilger
Senior Specialist in American National Government
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 experienced heightened levels of fiscal stress 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 an estimated $609.7 billion in FY2010, a decline of 10.4%. The decline in state tax revenue, coupled with statebalanced 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.” For example, even with an additional $107 billion in temporary federal assistance provided through P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA) in FY2010, states reduced their general fund expenditures by 7.3% from FY2009 ($660.9 billion) to FY2010 ($612.6 billion), enacted $23.9 billion in increased taxes and fees, and raised an additional $7.5 billion through other revenue measures. Although state tax revenue for FY2011 and FY2012 are projected to be above FY2010 levels, state budget officers predict continuing budgetary challenges in virtually all states in FY2011 and FY2012.
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 affect 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. Moreover, as funding from ARRA expires, there could be additional pressure for the federal government to provide additional federal assistance to states.
This report 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 FY2010. The data presented in this report indicate that (1) states cut their general fund budgets from FY2008 to FY2010, 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 FY2010, with an increased reliance on federal funds; and (3) states experienced varying levels of fiscal stress from FY2008 to FY2010. This report concludes with an assessment of the consequences current levels of state fiscal stress may have for the 112th Congress.
Date of Report: April 14, 2011
Number of Pages: 32
Order Number: R41773
Price: $29.95
Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports
Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.
Senior Specialist in American National Government
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 experienced heightened levels of fiscal stress 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 an estimated $609.7 billion in FY2010, a decline of 10.4%. The decline in state tax revenue, coupled with statebalanced 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.” For example, even with an additional $107 billion in temporary federal assistance provided through P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA) in FY2010, states reduced their general fund expenditures by 7.3% from FY2009 ($660.9 billion) to FY2010 ($612.6 billion), enacted $23.9 billion in increased taxes and fees, and raised an additional $7.5 billion through other revenue measures. Although state tax revenue for FY2011 and FY2012 are projected to be above FY2010 levels, state budget officers predict continuing budgetary challenges in virtually all states in FY2011 and FY2012.
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 affect 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. Moreover, as funding from ARRA expires, there could be additional pressure for the federal government to provide additional federal assistance to states.
This report 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 FY2010. The data presented in this report indicate that (1) states cut their general fund budgets from FY2008 to FY2010, 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 FY2010, with an increased reliance on federal funds; and (3) states experienced varying levels of fiscal stress from FY2008 to FY2010. This report concludes with an assessment of the consequences current levels of state fiscal stress may have for the 112th Congress.
Date of Report: April 14, 2011
Number of Pages: 32
Order Number: R41773
Price: $29.95
Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports
Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.
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