State Budgets Still Struggling despite Recovering Economy

Government Finance Review, February 2004 | Go to article overview

State Budgets Still Struggling despite Recovering Economy


Faced with stagnant revenues and persistent spending pressures, states have struggled with budget shortfalls over the past three years. According to the most recent edition of The Fiscal Survey of States by the National Association of State Budget Officers, states continue to deal with short-term cyclical and long-term structural problems, despite signs of an improving economy. States have attempted to overcome these challenges by enacting negative growth budgets, increasing taxes and fees, reorganizing programs, and drawing from their reserves. Despite these difficulties, however, there is cause for optimism-some states have begun to see their revenues rebound, and this trend is expected to continue over the next year.

The Fiscal Suruey captures data on general fund spending, which in 2003 represented 46.2 percent of the $1.1 trillion in total state spending. Major findings include the following:

* Twenty-one states enacted negative growth budgets in fiscal 2003, and 40 states-two more than the previous year and the most recorded in the 23-year history of The Fiscal Survey-reduced their enacted budgets after they were passed. These reductions totaled $11.8 billion.

* Thirteen states enacted negative growth budgets in fiscal 2004, and eight have already reduced their budgets by a total of $2 billion.

* To address budget gaps in fiscal 2003, 32 states enacted across-the-board cuts, 25 drew upon rainy day funds, 16 laid off employees, 13 offered early retirement, 13 reorganized programs, and 29 used a variety of other methods. …

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