Our latest update on state budget shortfalls shows that states continue to face a long and uncertain recovery.
The report finds that:
Revenues remain below the amount needed to sustain services like education and public safety, in part because states are coming out of such a deep hole. State revenues plunged as a result of the recession, and, while they are now growing again, it would take years of growth at the current rate to maintain services at anywhere near pre-recession levels, as my colleague Elizabeth McNichol has pointed out.
Moreover, states are facing serious headwinds that will slow their recovery. Emergency federal aid to states has largely expired, and large cuts in federal spending scheduled for coming years will likely affect ongoing federal funding for states and localities. Growth in the broader economy has been sluggish, as well.
Given these challenges, states should take a balanced approach as they prepare their budgets for the coming year — one that draws on reserves (in states that have them) and raises additional revenue, rather than relying on cuts alone.
The budget that California governor Jerry Brown proposed last week provides a good example: while it makes $4.2 billion in cuts to Temporary Assistance for Needy Families (TANF), Medicaid, and a host of other programs, it also raises $4.7 billion in additional revenue, primarily by creating new income tax rates for very high earners and raising the sales tax rate by half a percentage point. As Governor Brown recognized, a cuts-only approach would deepen the already severe cuts that states have made over the last several years to services that are critical to states’ economic futures, like K-12 education.