Stateline Story

State Budgets Hitting Bottom

States expect to hit bottom this year after two years of steep declines in revenue that created historic budget gaps. But no one is cracking open any champagne bottles yet.

"2011 is going to be the worst year … but the good news it's the bottom," said Raymond C. Scheppach, executive director of the National Governors Association as he released June 3 the latest state fiscal survey with the National Association of State Budget Officers." My hope is within two quarters, we begin to start to see some very, very small revenue growth,"

Scheppach said.The new fiscal year that begins July 1 for most states could be the most dire yet since federal stimulus dollars are dwindling as demands on state services continue to rise.

The NASBO and NGA report figures tax revenues will climb in 2011 but still far short of the amount collected during fiscal 2008, which serves as a baseline for states as it was the last fiscal year before states began to get hammered by the national recession.

New data from the Rockefeller Institute of Government also released June 3 showed states' overall tax revenues were up in the first quarter of calendar 2010, compared to the same period a year ago, marking the first such gain since the third quarter of 2008. This report cautioned, however, that "revenues are still significantly below prerecession levels." NASBO Executive Director Scott Pattison likens states' current fiscal predicament to a neighbor who got laid off from a high paying job and is now working as a consultant; she has income, but nowhere near what she had been earning. "That is what the states are facing now."

States have already closed $170 billion in budget gaps since fiscal 2009 but are looking at another $127 billion in gaps between now and fiscal 2012. As Stateline reported earlier, those gaps could widen even more if Congress doesn't provide an additional $24 billion in health care funding that many states are banking on, making states very nervous.

Thirty states have crafted 2011 budgets assuming that Congress will extend the extra Medicaid assistance that was part of the federal stimulus package and is set to expire at the end of December, a National Conference of State Legislatures' report said. 

Massachusetts, for example, faces a $700 million gap if Congress balks on giving the states the additional Medicaid money, The Boston Globe  reported. And the budget plan that Washington state Governor Chris Gregoire signed just a month ago also could have a $480 million hole in it if Congress doesn't act, The Olympian reported.In a June 3 letter to leaders of the U.S. Senate, NCSL reiterated its call for the six-month extension of the additional Medicaid funds.