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Economic Perspectives, Vol. 26, 3rd, No. 3, October 2002
Unprepared for boom or bust: Understanding the current state fiscal crisis
In October 2001, the state governors sent a letter to the U.S. Senate concerning the Senate’s proposed stimulus package. The governors sought to prevent the passage of a package that would be detrimental to already weak state budgets and to ask for specific assistance from the federal government for state budget items. As a result of the connection between federal and state revenues and spending, state leaders often comment on federal changes. What is remarkable about this letter is that only seven months after the end of the greatest post-war economic boom, the states were already seeking fiscal help from the federal government. In addition to its concerns about mounting defense and intelligence obligations and the flailing macroeconomy, the government now faced the specter of service shutdowns by bankrupt state governments.
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