Because of the weak economy, states now project a whopping $125 billion gap for next fiscal year between the cost of services and the available revenue, our latest update shows. That’s the worst gap on record, after accounting for federal assistance that states received under the 2009 Recovery Act and the August 2010 jobs bill.
To see what would happen if a state with a large budget gap closed it entirely through spending cuts — rather than a balanced approach that also includes revenue increases — look no further than Texas. This week’s proposal by the state’s Legislative Budget Board (LBB), an influential joint committee of legislators, illustrates the potentially severe consequences of these shortfalls.
Texas faces a nearly $27 billion shortfall for the two-year budget period that begins September 1, an average of $13.4 billion per year. At 32 percent of the state’s 2011 budget, this gap is one of the country’s largest. As Scott McCown of the Center for Public Policy Priorities has pointed out, this shortfall was caused by the national recession and exacerbated by a misguided 2006 tax cut that is costing the state $10 billion every two years.
The LBB proposal takes a cuts-only approach to closing the state’s enormous shortfall, almost entirely avoiding revenue increases and the use of reserves. As a result, it would hit hard at families and communities, including (but not limited to) many of Texas’ most vulnerable residents. Among other things, the proposal would:
Cuts of this magnitude are both counterproductive and unnecessary. While the sheer size of Texas’ fiscal problems make spending reductions inevitable, a balanced approach that also includes additional revenues and use of the state’s $9.4 billion “rainy day” budget reserves would help to preserve core state services like education, health care, and public safety. It would also be better for the state’s economy.
While Texas has an especially large budget gap, other states, too, are facing daunting shortfalls. The Texas example illustrates the kinds of damage that a cuts-only approach would inflict.