NCSL: Some States Will See Up to Three More Years of Fiscal Woes

WASHINGTON - Many states are facing at least two or three more years of serious fiscal problems because of continued revenue declines stemming from the recession, the National Conference of State Legislatures warned this week in a budget update.

"If certainly looks like 2011 at least and maybe into 2012 before we see improvements in the state situation or some kind of return to what we think of as normalcy," NCSL executive director William T. Pound said yesterday.

The fiscal problems for the 50 states and Puerto Rico would be much worse had Congress not enacted the American Recovery and Reinvestment Act, he said. "There's no question about it, that has helped a great deal."

The NCSL's 23-page quarterly update notes that 25 of the 32 states that reported budget information said they used ARRA funds to help close fiscal 2010 budget gaps. Forty-six of the 50 states have fiscal years running from July 1 through June 30. Fiscal 2010 began earlier this month.

"Some might think that state lawmakers are uttering a collective sigh of relief now that most have their new budgets in place, but that is not the case," the NCSL said in the update. "Dread is more like it. If fiscal 2010 budgets follow a pattern similar to the ones in the past two years, new gaps will emerge after the fiscal year begins - in fact, some states already are reporting new shortfalls just weeks into the new fiscal year. If that [is] not enough, lawmakers in many states already see budget gaps looming in fiscal 2011 and fiscal 2012."

"The fiscal challenges are enormous, widespread, and unfortunately, far from over," the group said.

According to the NCSL, budget gaps for the states and Puerto Rico totaled about $113.2 billion for fiscal 2009.

As bad as that was, the situation for fiscal 2010 looks worse, with the states and the commonwealth facing gaps totaling more than $142.6 billion, the group said. And that gap is expected to widen as revenues continue to fall.

At least 15 states are projecting gaps greater than 20% of their budgets, and 10 are forecasting gaps greater than 10% of their budgets, NCSL said.

While 25 states have used ARRA funds to close budget gaps, Montana and West Virginia relied completely on budget cuts to resolve their budget imbalances.

At least 11 states raised taxes, 12 raised fees, 12 used other revenue to shore up budgets, and eight tapped their rainy-day funds, the NCSL said.

But new gaps are expected to emerge as revenues continue to fall. Of 32 states providing projections, 19 expect general fund revenues to drop below fiscal 2009 collections, with Alaska projecting the largest decline of 45.3%, following by West Virginia, with an expected drop of 11.9% and Utah with a decrease of 10.8%.

Thirty states and Puerto Rico already are projecting budget gaps for fiscal 2011 and 24 of them provided specific estimates showing a $58.5 billion total gap. The states expected to be hardest hit were on both coasts: Washington projected a $3.4 billion or 22% budget gap, followed by Maine with an estimated $765.2 million or 21.6% gap.

At least 15 states are projecting budget gaps for fiscal 2012, with nine of them providing figures showing a total gap of $21.1 billion. Among those expected to be hardest hit, Hawaii is projecting a $1.2 billion or 21% gap and Minnesota is estimating a $3.2 billion or 18.9% gap.

The fiscal challenges for fiscal 2011 and 2012 stem from three principal concerns, the NCSL said. One is that recessions tend to drive up state spending for caseload-driven safety net programs like Medicaid. Another is that bulk of ARRA funds will be disbursed by the end of this year and a third is that state revenue performance has been pummeled by the recession and it's not clear when it will begin to recover.

"Many states say they are looking at a cliff in 2011 because they know ARRA funding will be gone and they do not expect state revenue performance to rebound strongly enough to make up the different," the NCSL said.

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