Updated: June 15, 2009

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Policy Brief

Budget Outlook For States: Grim

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Though the severe economic downturn that has gripped the nation since late last year may show signs of easing, the same can’t be said for the states.

Overall state spending on categories such as education, health care, and prisons is down 2.2 percent this fiscal year, and is expected to decline another 2.5 percent in fiscal 2010. It’s the first two-year decline recorded in the 30 years that the National Governors Association and the National Association of State Budget Officers have done fiscal surveys of states.

“These are some of the worst numbers we have ever seen,” said Scott Pattison, the executive director of the budget officers’ group.

That means that more cuts are likely for K-12 and higher education, which make up nearly half of states’ budgets. And tough times for states could stretch into 2013, said Raymond C. Scheppach, the NGA’s executive director.

Already this fiscal year, 26 states have reported making cuts to K-12 education, says the biannual Fiscal Survey of States report released this month by the two Washington-based organizations. And 27 states predict they will have to cut fiscal 2010 precollegiate education spending, usually among the most politically difficult cuts for legislators and governors to make.

The only other time state budgets came close to being in such bad shape was in 1983, when overall state spending also declined—but only slightly, and for only one year.

States are facing these conditions even after the passage of the $787 billion American Recovery and Reinvestment Act, of which about $246 billion will benefit state budgets, says the NGA.

That federal economic-stimulus aid has allowed states, at least temporarily, to hold off on deep cuts to education and health care, said Mr. Scheppach.

“The downturn would have been a lot worse if we didn’t have a recovery package,” he said. “However, the economy has just continued to deteriorate despite the package, ... which is leaving us in such a deep hole.”

Just how deep is the hole, nationally? Mr. Scheppach offered a guess: $200 billion to $250 billion over three years, if things don’t get worse.

Vol. 28, Issue 35, Page 18

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