State Government Fiscal Stress and Federal Assistance

Source: Robert Jay Dilger, Congressional Research Service, CRS Report for Congress, R41773, December 3, 2012

…Although no two state budgets are alike, all 50 states have experienced fiscal stress in recent years, especially 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 $609.8 billion in FY2010, a decline of 10.3%. The decline in state tax revenue, coupled with increased demand for social services and state-balanced 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.”…

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 FY2011. The data indicate that (1) states reduced their general fund budgets from FY2008 to FY2011, 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 FY2011, with an increased reliance on federal funds; and (3) states experienced varying levels of fiscal stress from FY2008 to FY2011. This report concludes with an assessment of the consequences current levels of state fiscal stress may have for the 113th Congress….

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