Long-Term Fiscal Management Tools

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One essential question in state budgeting is, “Will the decisions elected leaders make today prove affordable tomorrow?” Although residents will always need government programs and services, such as schools, roads, prisons, and health insurance, budget imbalances can jeopardize governments’ ability to afford these programs and services.

States can use two analytical tools to gauge their risk of imbalances and promote greater budget sustainability: long-term budget assessments and budget stress tests. Long-term budget assessments project revenue and spending several years into the future to show whether states face structural budget deficits and, if so, why. Stress tests estimate the size of budget shortfalls that would result from recessions or other potential economic events and evaluate whether the state is prepared for these events.

The findings of these analyses can inform some of states’ most consequential budget decisions. For instance, if a state cuts taxes this year, will it still be able to afford its spending commitments in five or 10 years—or the next time a recession hits? If a state increases teacher pay, will it face budget shortfalls later? Together, stress tests and long-term budget assessments can help provide the answers.

What is Budget Stress Testing?
What is Budget Stress Testing?
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What is Budget Stress Testing?

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How can lawmakers manage budget uncertainty while still meeting residents' needs? Our Kil Huh explains what budget stress testing is and how it works—and how states can use it in the months ahead.

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Budget Stress Testing Helps States Prepare for Fiscal Distress

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Budget stress tests help states estimate the potential financial shortfalls that could result from adverse events—a dramatic economic downturn, for example, or an outbreak of illness, such as the one caused by the novel coronavirus. Policymakers can use this data to plan ahead, helping to avert or limit a fiscal emergency and keep long-term priorities on track.

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Budget Forecasts and Contingency Plans Help States Prepare

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Speeches & Testimony

In a memo sent Aug. 20, 2021, to Colorado’s Office of State Planning and Budgeting, experts from The Pew Charitable Trusts discuss how two fiscal management tools—long-term budget projections and contingency plans—help states prepare for fiscal challenges.

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Issue Brief

How States Can Manage Midyear Budget Gaps

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Issue Brief

State governments generally adopt budgets that lawmakers believe are balanced, with sufficient revenue to pay for expenses. But because states typically enact their budgets before the start of a fiscal year, policymakers must rely on forecasts of how much revenue the state will collect and how much it will spend.

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