WASHINGTON - Prompted by the national economic downturn and sagging state revenue growth for fiscal 2008, more than 20 states face fiscal 2009 budget gaps that collectively exceed $26 billion, according to a report from the National Conference of State Legislatures.
States also face the problem of keeping fiscal 2008 budgets afloat on top of dealing with those growing fiscal 2009 gaps, according to the bleak report, "State Budget Update: April 2008," which the NCSL released Friday.
"Because most FY 2008 budgets were built on revenue forecasts that are not materializing as expected, budget gaps have grown," the NCSL said in a statement. "The situation is worse for FY 2009: budget gaps have emerged in 23 states and Puerto Rico, and collectively they exceed $26 billion."
The report cites slowing or declining revenue from personal income, general sales, and corporate income taxes as the reason for the states' woes, noting that two-thirds of state legislatures are "concerned" about fiscal 2009 revenue performance.
NCSL collected information from legislative fiscal directors in April and the report covers revenue and expenditures from the first three quarters of fiscal 2008 for most states.
"The current health of state budgets is very uneven," said NCSL executive director William T. Pound in a statement. "For energy-producing states, the fiscal situation is strong and the outlook is good. But that situation is in stark contrast to states where the housing sector slump has been particularly severe or other fiscal challenges have prevailed."
For fiscal 2009, 33 states and Puerto Ricoreported a "concerned" outlook. Ten states expect revenues to be "stable," and Arizona, Delaware, New York, and Washington are "pessimistic" about next year's revenue performance, the report said. Alaska, North Dakota, and Wyoming are "optimistic" about 2009, as all three have energy sectors that are producing strong revenue growth, the report said.
Many states have reduced their current-year revenue forecasts, in some cases several times.
Seven states and Puerto Rico reported fiscal 2008 budget gaps in November, but that number has since grown to 16.
The report notes that the cumulative fiscal 2008 shortfall is $3.2 billion. More than half the 16 states have cut spending to eliminate the shortfall, the report said. Florida implemented $1 billion in cuts during a special session in October and imposed additional reductions during the regular session in 2008. Nevada imposed across-the-board cuts for all agency budgets, including K-12 education. Other states have tapped rainy-day funds or other state accounts, issuing more tax-exempt bonds or reducing capital projects.
In fiscal 2009, 23 states and Puerto Rico project gaps of about $26 billion, with four states still determining the size of their gaps. The report said that many states have closed, or are in the process of closing the gaps during their 2008 legislative sessions.
Ten states report budget gaps of 5% or more of their general fund budgets, and in half of these, the imbalance is more than 10%, including Alabama 12.6%, Arizona with 17.9%, California at 11.2%, Florida with 10.3% and Nevada at 16.9%.
Sixteen states reported gaps for both fiscal 2008 and 2009.
Some states are shifting to the debt markets for capital projects, including Nevada. At least eight states are considering tax or fee increases. California is looking to various tax-related proposals, and Massachusetts' lawmakers are considering a $1-per-pack cigarette tax increase that is projected to raise $175 million.
Illinois is eyeing selling its lottery to shore up funds.
The outlook is not all bad news for some states, including Louisiana, whose storm-recovery spending is slowing but still ongoing, and the oil and gas sector is strong. The report noted that North Dakota's revenues are exceeding legislative estimates by 13%, and with natural gas, oil, and coal prices ahead of projected levels, officials in states such as Wyomingmay revise fiscal 2009 and 2010 revenues upward this fall.
