Stateline Story

Mid-Year Budget Gaps: $26.7 Billion

The latest snapshot of state finances by the National Conference of State Legislatures, released today (December 8), provides both good news and bad news for incoming governors and lawmakers.

While tax revenues seem to be stabilizing after years of poor receipts, at least 15 states still must close budget shortfalls totaling $26.7 billion in the current fiscal year. Next fiscal year, 35 states face deficits as the federal stimulus expires and the strain on social services, particularly Medicaid, goes up.

"It's a sort of budget paradox," NCSL's Arturo Perez tells The Los Angeles Times , which notes that the expiring stimulus alone accounted for about 5 percent of state budgets last year. "Revenues are stabilizing or even growing for the first time in 18 to 24 months. …But they're not growing fast enough to offset that 5% across the board."

The NCSL report is the latest to paint a mildly optimistic picture for state revenues while cautioning strongly that deep budget cuts are still likely. That comes not only because of the disappearing stimulus and new Medicaid obligations, but because states already have made years of cuts and the choices available to lawmakers now are more limited.

Among the budget cuts that have attracted the most attention in recent weeks, for example, is Arizona's decision not to pay for potentially life-saving organ transplants under the state's Medicaid program. Governor Jan Brewer on Tuesday (December 7) rejected calls for a special legislative session to restore the cuts, The Arizona Republic reports , despite an increasing national focus on them.

California and Washington are among the states that still must resolve significant budget shortfalls in the current fiscal year, and governors in both states announced special sessions this week in order to make spending cuts. Outgoing California Governor Arnold Schwarzenegger, a Republican, called a special session on Monday (December 6), but many of his proposals were immediately met with skepticism from the Democratic-led Legislature. In Washington, Governor Chris Gregoire announced plans for a special session before Christmas to deal with a $1.1 billion shortfall created, in part, by voters' rejection of an income tax on the wealthy in last month's elections.

According to the NCSL report, Illinois faces the largest proportional shortfall of any state in the current year, at $13 billion, or 47 percent of its overall budget. Other states with substantial mid-year gaps include Missouri, New Mexico and Texas.