Bad Company: Most States Face Continuing Budget Woes

Following on yesterday's warning from Gov. Gregoire that the state may not have the money to make it to January, here's a brief inventory of the budget challenges faced by states across the nation.

For context, here's how legislative experts saw things at the end of April.

When enacting their budgets for FY 2009, 44 states collectively resolved a $40.3 billion budget gap. But those actions were not enough to keep budgets balanced. Just a few months into the fiscal year, a new $32 billion gap opened, which eventually climbed to $62.4 billion. Officials hope the FY 2009 gap has peaked, but a few indicate that upcoming revenue forecasts could still add to their current fiscal year imbalance.

“During this legislative session, legislators were left with only tough and unpopular options to balance state budgets,” said William T. Pound, executive director of the National Conference of State Legislatures. “The situation will be even more difficult in the next two years, given the serious cuts that have already been made. The easy adjustments have already been taken.”

Easy adjustments? Not so's you'd notice. But I agree that the next two years will be more difficult.

Governing.com provides a good summary of today's budget report from the liberal Center on Budget and Policy Priorities. In typically understated terms, CBPP report:

States are facing a great fiscal crisis. At least 47 states faced or are facing shortfalls in their budgets for this and/or next year, and severe fiscal problems are highly likely to continue into the following year as well.

Whether or not you agree with the CBPP's policy prescriptions, and I generally do not, their analysis of the states' fiscal predicament is well grounded.

For those who think the difficulties might be eased with an income tax, this CNN/Money report ought to slow down some of the hype. A sample:

The latest blow came from the April 15 income tax returns, which states are tallying now. The weak stock market has decimated capital gains tax revenue, upon which many states depend, experts said.

Already, several states have found revenues coming in well below estimates, prompting officials to scramble to close gaps. Massachusetts and Ohio, for instance, are facing new gaps that could exceed $900 million each. New Jersey is looking at a $500 million shortfall after a government report predicted revenues will come in $1.2 billion below projections, in large part because of sagging income tax revenue. In other states, officials will huddle in coming days and issue new budget estimates.

Jeff Cornwall at The Entrepreneurial Mind looks to Scotland to show what happens to entrepreneurs when government decides to go after the rich. No joy there.

Not much fiscal joy anywhere.