Director of State Communications
Those who are blaming states for their severe budget shortfalls and arguing that Congress shouldn’t provide much-needed assistance until states “clean up their act” (here’s a recent example) are wrong on both counts.
The huge gap between what states need and what they have overwhelmingly reflects how badly state income, sales, and corporate tax revenues have collapsed in the recession. In fact, state tax revenues have fallen more in this recession than at any time in at least the past 45 years (the relevant data only go back to 1965).
States entered the recession with their largest budget reserves in history, totaling $69 billion or 10.5 percent of their general fund budgets at the end of fiscal year 2007. But the length and severity of the recession has depleted those reserves. In 2012 alone, state budget shortfalls are expected to be $120 billion.
And the suggestion that states are looking for the federal government to bail them out and solve all their budget problems instead of taking their own action ignores some basic realities.
To be sure, a number of states’ past policy decisions have added to their current problems, such as tax cuts they couldn’t afford — which contributed to the underfunding of pension systems — and a myriad of dubious “job-creating” corporate tax breaks. But even if states had acted flawlessly, this recession would have hit them hard.
To suggest that Washington should withhold assistance now is like refusing to put the fire out in a burning building until it’s brought fully up to code.