Podcast: States Continue to Feel Recession’s Effects

October 25, 2010

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In this podcast, we will discuss how states are continuing to feel the recession’s impact. I’m Shannon Spillane and I’m joined by Policy Analyst Phil Oliff.

1. Phil, when we last spoke in July about the new fiscal year for states, they were in pretty bad shape because of an unprecedented collapse in state revenues due to the recession. Has anything changed since then?

Unfortunately, states are still in trouble. 46 states addressed budget shortfalls totaling $125 billion this budget year. That’s almost 20 percent of the state budgets. In other words, one out of every five dollars that states need to pay for education, health care, roads and bridges and other things states provide simply isn’t there.

2. How is this affecting state residents?

Residents are feeling the effects in a number of ways – many students this fall returned to more crowded classrooms. Tuition jumped dramatically at many state universities and community colleges, even as financial aid was cut. Some communities have fewer cops on the beat, and some are putting off road repairs, just to name a few examples.

3. What are some ways that states can get the resources they need?

States need to take a balanced approach that includes more revenues, because this problem is just too big to be solved with cuts alone.

Federal aid to states also is critical but that aid will mostly be gone by next year. The federal government could help ease the pressure on states by extending assistance instead of cutting it off before states have recovered. And it’s important that the federal government not take any actions that make state budget situations worse.

4. Is there any indication that things are getting better?

Well, yes and no. State revenues are stabilizing, and many states expect some revenue growth this year after the record decline of recent years.

So, the good news is that state revenues may have stopped shrinking. The bad news is that they remain far below pre-recession levels and far below the amount needed to maintain the current level of public services that states are providing – services like education and health care. In fact, we expect total state budget shortfalls for next year to be about $140 billion.

Unfortunately, the worst is far from over, which means when states plan their budgets for next year, it will be as important as ever to take a balanced approach to this crisis – one that includes new revenues.

Thanks for joining me, Phil.

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