Economic Data Can Be Used To Target State Fiscal Relief Effectively

Source: Iris J. Lav, Jason Levitis, and Elizabeth McNichol, Center on Budget and Policy Priorities, July 9, 2008

From the abstract:
States are experiencing major budget problems; more than half faced or are projecting deficits for the 2009 fiscal year. To meet their balanced budget requirements, many states have had to raise taxes and/or cut expenditures for services such as health care and education — actions that deepen the nation’s economic problems and offset some of the effect of the federal stimulus package enacted earlier this year by removing demand from the economy. As the state fiscal crisis deepens, more states may be forced to take such actions. To date, however, federal policymakers have shown some reluctance to enact federal fiscal relief that would lessen the fiscal pressure on states.

Some of this reluctance stems from a concern that part of the federal aid would go to states that are not experiencing fiscal stress. This concern is reasonable. But it can be addressed by targeting fiscal relief to those states that are facing problems now. Should the economic downturn become deeper and more widespread, relief could be expanded to encompass more or all states.

This report uses three indicators — employment declines, increases in housing foreclosures, and increases in poverty (measured through increases in food stamp participation) — to identify states facing the greatest economic distress. For each of these indicators, the report compares the fourth quarter of 2006 — the beginning of the downturn — to recent data. It ranks each state separately on the change it has seen in each indicator, then averages the three rankings for each state to produce a single overall ranking of economic distress.

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