States' fiscal dilemma worst since Great Depression

DES MOINES – A national fiscal survey issued Thursday indicated the current fiscal year that ends June 30 has posed the toughest challenges for managing state government finances since the Great Depression.

And, leaders of the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO), which jointly released the fiscal 2010 findings, said that although the nation's economy shows signs of improvement, state fiscal conditions continue to deteriorate.

According to the associations' biannual survey, states have dramatically reduced spending from $687.3 billion in fiscal 2008 to $612.9 billion in fiscal 2010 to address falling revenues and meet balanced budget requirements.

 The report also indicated fiscal 2011, which begins July 1, will be equally challenging, in spite of modest revenue growth, meaning states will have to make additional spending cuts or increase taxes to close their budget gaps.

General-fund expenditures for the current fiscal year dropped by 6.8 percent, according to the survey findings. But, state budgets recommended by governors for fiscal 2011 forecast a 3.6 percent increase in general-fund expenditures to make up for an expected $55 billion decline in federal recovery funding.

“States are still reeling from the downturn after the unprecedented declines in year over year spending in fiscal 2009 and 2010,” said Scott Pattison, NASBO executive director. “States face significant fiscal challenges going forward with the federal Recovery Act funds ending, revenues not expected to be returning to pre-recession levels, and higher demands for many services like health and education.”

The weakening of state fiscal conditions was reflected in the $296.6 billion in budget gaps faced by states between fiscal 2009 and fiscal 2012. Of the $296.6 billion, $169.3 billion has been closed by states, according to the report.

“Our best estimate of the remaining state shortfalls for 2010-2012 is $127.4 billion. Because states lag behind national recovery, they expect 2011 to be as bad as 2010, and states will not begin the path to recovery until 2012,” said Raymond Scheppach, NGA executive director.

“Spending cuts have been made across the board and governors have been tremendous fiscal stewards. However, it will continue be an uphill climb for states until 2013 when revenues are expected to return to 2008 levels,” he added.

The survey, which reflects actual fiscal 2009, estimated fiscal 2010 and recommended fiscal 2011 figures, can be found at the www.nga.org Web site.

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