States in the Recession

Additional Federal Fiscal Relief Needed to Help States Address Recession’s Impact

“[Without additional federal relief,] states will have to take steps to eliminate deficits for state fiscal year 2011 that will likely take nearly a full percentage point off the Gross Domestic Product…[and] in turn, could cost the economy 900,000 jobs next year.

“[This] problem is coming to a head now… because states… are taking steps now to plan their [2011] budgets.”  Read more

Related:

• Recession Continues to Batter State Budgets; State Responses Could Slow Recovery

•  Correcting Five Myths About the Stimulus Bill
   

Background

The weak economy is generating great fiscal distress among states by shrinking their tax revenues significantly. Because states cannot run deficits, they must close their shortfalls by cutting spending or raising taxes. That causes two further problems. First, their spending cuts and tax increases take money out of the economy, making the downturn even worse. Second, as states have to cut back, they cannot respond to the rising need for health care and other services that occurs when workers lose jobs or are otherwise hit by the economic downturn.