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29 States Faced Total Budget Shortfall of at Least $48 Billion in 2009

January 15, 2008
For the most up-to-date information on state budget shortfalls, please view our newer analysis:

"State Budget Problems Worsen: 13 States Face New Shortfalls"

At least 29 states plus the District of Columbia, including several of the nation’s largest states, faced an estimated $48 billion in combined shortfalls in their budgets for fiscal year 2009 (which began July 1, 2008 in most states.)  At least three other states expect budget problems in fiscal year 2010.

In general, states closed these budget gaps through some combination of spending cuts, use of reserves or revenue increases when they adopted a fiscal year 2009 budget.  At this point in the year, most states have already adopted those budgets; only two states — California and Michigan — continue to deliberate.[1]  In order to present a complete picture of the impact of the current economic downturn on state finances, we report both the gaps that have been closed and those that will be closed in the future. 

The bursting of the housing bubble has reduced state sales tax revenue collections from sales of furniture, appliances, construction materials, and the like.  Weakening consumption of other products has also cut into sales tax revenues.  Property tax revenues have also been affected, and local governments will be looking to states to help address the squeeze on local and education budgets.  And if the employment situation continues to deteriorate, income tax revenues will weaken and there will be further downward pressure on sales tax revenues as consumers become reluctant or unable to spend.

The vast majority of states cannot run a deficit or borrow to cover their operating expenditures.  As a result, states have three primary actions they can take during a fiscal crisis:  they can draw down available reserves, they can cut expenditures, or they can raise taxes.  States already have begun drawing down reserves; the remaining reserves are not sufficient to allow states to weather a significant downturn or recession.  The other alternatives — spending cuts and tax increases — can further slow a state’s economy during a downturn and contribute to the further slowing of the national economy, as well.

TABLE 1:

SIZE OF FY2009 BUDGET GAPS

 

Amount

Percent of FY2008 General Fund

Alabama

$784 million

9.2%

Arizona

$1.9 billion

17.8%

Arkansas

$107 million

2.5%

California1 2

$22.2 billion

21.3%

Connecticut

$150 million

0.9%

Delaware

$217 million

6.4%

District of Columbia

$96 million

1.5%

Florida

$3.4 billion

11.0%

Georgia

$245 million

1.2%

Illinois

$1.8 billion

    6.6%

Iowa

$350 million

6.0%

Kentucky

$266 million

2.9%

Maine

$124 million

4.0%

Maryland

$808 million

5.5%

Massachusetts

$1.2 billion

4.2%

Michigan1

$472 million

4.9%

Minnesota

$935 million

5.5%

Mississippi

$90 million

1.8%

Nevada

$898 million

13.5%

New Hampshire

$200 million

6.4%

New Jersey

$2.5 - $3.5 billion

7.6 - 10.6%

New York

$4.9 billion

9.1%