The National Governors’ Association has projected
that state budgets will face an $80 billion deficit in
fiscal year (FY) 2004. This would represent almost
18 percent of total state spending. This comes on the
heels of a nearly $30 billion spending gap in FY2003.
This degree of budget insolvency in the state sector
is unique for two reasons. First, it follows a relatively
mild national recession that, by historical standards,
would not have been expected to send the states into
such budget turmoil. Second, it has affected virtually
every state, regardless of the type of revenue system
they use to support state government functions. The
persistent nature of these budget shortfalls has exhausted
the usual budget adjustments that states make
to pull themselves through tough times. Fund transfers,
drawing down reserves, and one-shot revenue
infusions were all used to balance state budgets in
FY2002 in the hopes that stronger economic growth
would restore fiscal health going forward.
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