From the summary:
State fiscal conditions in fiscal 2011 are somewhat improved when compared to the difficult fiscal environment that states faced in fiscal 2009 and fiscal 2010. This coincides with the economic recovery occurring nationally. However, as states enter fiscal 2012 they face the wind down of significant funding that was provided through the American Recovery and Reinvestment Act of 2009 (ARRA). Furthermore, as unemployment remains elevated and consumer spending remains soft , state revenue collections continue to be impacted by the economic downturn while demand for healthcare and social services remains high. As such, even after an improvement over one of the worst time periods in state fiscal conditions since the Great Depression, fiscal 2012 and fiscal 2013 should present many states with tough budget choices.
State general fund spending is forecast to rise 2.6 percent in fiscal 2012 after rising 5.2 percent in fiscal 2011. Although 40 states proposed a fiscal 2012 budget with general fund spending levels above those of fiscal 2011, declines of 6.3 percent and 3.8 percent fiscal in 2010 and fiscal 2009 respectively mean that state general fund spending still remains $18.7 billion, or 2.7 percent below peak fiscal 2008 levels. Last year’s general fund spending decline of 6.3 percent is the largest decline in state spending in the history of this report.