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So Far, So Bad for States’ 2012 Budgets

About two-thirds of states have enacted budgets for the 2012 fiscal year (which begins on Friday in most states), and the news to date isn’t encouraging:  most states are making substantial cuts to services that will slow the economic recovery and undermine efforts to create jobs.

The long and deep recession has caused tax collections in most states — despite modest recent improvements — to lag far behind the growing cost of maintaining existing services.  Plus, the federal government isn’t renewing the emergency aid it gave states to help respond to the recession; a large piece of that aid will expire on June 30.  And many of the states that will make deep cuts in 2012 have failed to raise new revenue to replace some of the revenue lost to the recession.  Some states even added to the cutbacks needed by reducing corporate or other taxes.

As our new report explains, the cuts are both deep and damaging.  To cite just a few of the many examples:

  • Arizona is eliminating Medicaid coverage for 130,000 childless adults and phasing it out for the 150,000 childless adults still enrolled.
  • Georgia is shortening the statewide pre-K school year from 180 to 160 days, increasing pre-K class sizes from 20 to 22 students per teacher, and reducing pre-K teacher salaries by 10 percent.
  • North Carolina is taking nearly half a billion dollars from K-12 education in each of the next two years and cutting a state-funded pre-K program for at-risk 4-year-olds by 20 percent.  It’s also cutting higher education by nearly half a billion dollars in each of the next two years.
  • Wisconsin is scaling back its Earned Income Tax Credit for 152,000 families with two or more children, costing families with three or more children an average of $518 next year and families with two children an average of $154.

Cutting state services not only hurts vulnerable residents but also slows the economy’s recovery by reducing overall economic activity.  When states cut spending, they lay off employees, cancel contracts with vendors, reduce payments to businesses and nonprofits that provide services, and cut benefit payments to individuals.  All of these steps remove demand from the economy.

Moreover, many of the services that states are cutting are important to states’ long-term economic strength.  For instance, research shows that in order to prosper, businesses need a well-educated, healthy workforce.  Many of the budget cuts described here will weaken that workforce by diminishing the quality of elementary and high schools, making college less affordable, and reducing residents’ access to health care.  That, in turn, could slow the state’s economic growth over the long term.