Analysis Estimates That States Face Combined $100B Budget Gap by Fiscal Year 2010, Which Could Prompt Cuts in Programs Such as Medicaid
State tax revenues declined in the most recent quarter, with the median state studied experiencing a 5.5% inflation-adjusted decline in total tax revenue, according to an analysis by the Center for Budget and Policy Priorities, the Wall Street Journal reports. CBPP analyzed available data from the revenue departments of 15 states and found that total inflation-adjusted revenue was down in 14 of the 15 states for the quarter that ended in September compared to 2007. The report estimates that by fiscal year 2010, states will face a total budget gap of $100 billion, or 15% of their budgets.
The decline "has potentially broad economic significance" because, unlike the federal government, states generally are required to balance their budgets each year and will have to either reduce spending or raise taxes -- "both the opposite of what many economists, including some deficit hawks, say is needed during the current economic downturn," the Journal reports. In addition, states "often take measures that exacerbate the difficulties created by the recession, such as tightening Medicaid eligibility at a time when workers lose their jobs and health insurance," according to the Journal.
Nicholas Johnson, a co-author of the report and director of the center's State Fiscal Analysis Initiative, said cuts in state spending "will take demand out of the overall economy and worsen the economic downturn." He added that moves such as slashing reimbursements to Medicaid providers or reducing grants to not-for-profit social-service providers "are all things that take dollars out of families' pockets, and that's money they can't spend in their local economies." Chris Edwards, director of tax policy at the Cato Institute, said the recession should prompt states to overhaul programs, adding, "Private companies do it all the time, and I think it's beneficial," adding, "Recessions come and go -- we survive" (Drucker, Wall Street Journal, 10/25).
The report is available online (.pdf).
