Category Archives: State & Local Finance

President’s Budget Would Cut Deeply Into Important Public Services and Adversely Affect States

Source: Sharon Parrott, Kris Cox, Danilo Trisi, and Douglas Rice, Center on Budget and Policy Priorities, February 20, 2008

The President’s 2009 budget would provide some $20.5 billion less for domestic discretionary programs outside of homeland security — a broad category of programs that includes everything from child care to environmental protection to medical research — than the 2008 level, adjusted for inflation.

The budget calls for reductions in a broad range of services, including some areas that have seen sizable cuts in recent years. For example, the budget would cut child care, environmental protection, and job training — all areas for which funding in 2008 is well below funding earlier in the decade, after adjusting for inflation.

State tables

Bond Crisis Already Crimping States

Source: Daniel C. Vock, Stateline.org, February 15, 2008

Michigan just suspended a state loan program for 8,500 students, and the Port Authority of New York and New Jersey is facing a four-fold jump in interest rates on one of its loans. Both are signs of a new bond-market crisis that is threatening to hurt other cities and states if left unchecked.

Hopes are riding high that famed investor Warren Buffett, the administration of New York Gov. Eliot Spitzer (D), Congress or federal agencies will avert even bigger troubles.

If not, cities and states that issue tax-exempt bonds to raise money for such projects as road and bridge work or rely on investors to raise student-loan money could confront a series of new problems stemming from the subprime mortgage meltdown.

New Federal Law Could Worsen State Budget Problems: States Can Protect Revenues by “Decoupling”

Source: Nicholas Johnson, Center on Budget and Policy Priorities, February 13, 2008

The federal “economic stimulus” package enacted today not only cuts federal taxes, but also threatens to reduce many states’ corporate and personal income tax revenue this year and next year.

The potential revenue loss comes at a particularly problematic time for states, because about half the states are already facing budget shortfalls for the current year, the upcoming year, or both; more states will be in trouble if the economic downturn worsens. Some states are already enacting cuts in K-12 education, higher education, health care and human services, among other areas in order to balance their budgets.

Administration’s Medicaid Regulations Will Weaken Coverage, Harm States, And Strain Health Care System

Source: Allison Orris and Judith Solomon, Center on Budget and Policy Priorities, February 13, 2008

Over the last year, the Department of Health and Human Services (HHS) has issued a series of Medicaid regulations that could significantly affect health care at the state and local level. These regulations, most of which alter longstanding Medicaid policies, do not require congressional approval. In fact, in some cases Congress has expressly declined to enact the very same changes that HHS is now making through administrative action.

In addition, in December the Administration issued an interim final rule to implement a provision of the 2006 Deficit Reduction Act. The new rule goes well beyond Congress’s intent in that legislation, and does so in ways that will jeopardize access to essential health services.

Taken together, these regulatory changes will reduce federal Medicaid spending by close to $15 billion over the next five years. Most of these costs will simply be shifted to state and local governments, at a time when states have less capacity to absorb added costs given the economic slowdown and their weakening fiscal conditions.

State and Local Governments: Growing Fiscal Challenges Will Emerge during the Next 10 Years

Source: Government Accountability Office, GAO-08-317, January 22, 2008

State and local governments provide an array of services to their residents, such as primary and secondary education, libraries, police and fire services, social programs, roads and other infrastructure, public colleges and universities, and more. These subnational governments may face fiscal stress similar to the federal government. Given the nature of the partnership among levels of government in providing services to Americans and the economic interrelationships among levels of government, understanding potential future fiscal conditions of the state and local government sector is important for federal policymaking. To provide Congress and the public with this broader context, we developed a fiscal model of the state and local sector. This report describes this model and provides (1) simulations of the state and local government sector’s long-term fiscal outlook, (2) an analysis of the underlying causes of potential fiscal difficulties for the sector, (3) a discussion of the extent to which the long-term simulations are sensitive to alternative assumptions, and (4) an examination of how the state and local government sector could add to future federal fiscal challenges.

Federal Grants To States And Localities Cut Deeply In Fiscal Year 2009 Federal Budget

Source: Iris Lav and Phil Oliff, Center on Budget and Policy Priorities, February 4, 2008

Grants to state and local governments have long been an important way in which the federal government supports and administers programs efficiently. The new budget, however, continues to significantly erode those grants. This leaves states and localities the option of either curtailing services or increasing their own taxes to compensate for declining federal funds. These cuts would come at a particularly difficult time, when many states already are cutting programs to balance their budgets and half of the states face budget gaps for the upcoming fiscal year of more than $34 billion.

Understanding States’ Fiscal Health During and After the 2001 Recession

Source: Elaine Maag, David Merriman, Urban Institute, January 30, 2008

Every state except Vermont operates under some sort of balanced budget requirement. That means that to serve the increased need of distressed populations during recessions, states must either increase revenue or reallocate resources dedicated to other programs. Similarly, when revenue declines, states must raise taxes or reallocate resources. This report examines the extent to which rainy day and general fund savings were a significant factor in helping states cope with fiscal stress during and after the 2001 recession, a possible explanation for the lower than expected legislated tax increases and social welfare cuts.

19 States Face Total Budget Shortfall of at Least $32 Billion in 2009; 9 Others Expect Budget Problems

Source: Elizabeth C. McNichol and Iris Lav, Center on Budget and Policy Priorities, January 28, 2008

At least twenty-five states, including several of the nation’s largest, face budget shortfalls in fiscal year 2009. Of these 25 states, 19 have already made specific estimates; the combined deficits of these 19 states are expected to total at least $32 billion for fiscal 2009 — which begins July 2008 in most states. Another 3 states expect budget problems in fiscal year 2010, although some of those gaps may occur earlier than expected. Many of the other states have not yet released information about their fiscal status.

Projections of Education Statistics to 2016

Source: National Center for Education Statistics

This edition of Projections of Education Statistics provides projections for key education statistics, including enrollment, graduates, teachers, and expenditures in elementary and secondary schools. Included are national data on enrollment and graduates for the past 15 years and projections to the year 2016, as well as state-level data on enrollment in public elementary and secondary schools and public high school graduates to the year 2016.

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13 States Face Total Budget Shortfall of at Least $23 Billion in 2009; 11 Others Expect Budget Problems

Source: Center on Budget and Policy Priorities

According to a new report, thirteen states, including several of the nation’s largest, face a combined budget shortfall of at least $23 billion for fiscal 2009. Another 11 states expect budget problems next year or the year after. The initial reports for 2009, which runs from June 2008 to June 2009 for most states, suggest states are returning to a time of budget deficits.

Some of the fiscal problems are due to economic conditions outside states’ control. The bursting of the housing bubble has reduced state sales tax revenue collections from sales of furniture, appliances, construction materials, and the like. Property tax revenues have also been affected, and local governments will be looking to states to help address the squeeze on local and education budgets.

In many states, however, these economic problems are being magnified by endemic budget weaknesses created by past state decisions about taxes and expenditures. Some states have relied on one-time revenues (such as the sale of state assets) to balance their budgets, have enacted tax cuts — often multi-year — without accurately assessing their affordability, and have failed to address structural weaknesses in their budgets.