We updated our analysis today of state budget shortfalls, which shows that states continue to confront major challenges as they craft their budgets for the coming fiscal year. They face:
The size of these shortfalls is daunting, especially given the expiration of emergency federal aid. But as our survey of governors’ new budget proposals explains, states can balance their budgets while averting the most damaging cuts in services like education, health care, and public safety by tapping their “rainy day” reserves and raising additional revenue to replace the revenue lost due to the recession.
Indeed, some governors are doing just that. Most, however, are pitching budget plans that rely solely on cuts. Worse, a number of governors are proposing tax cuts, which would only dig their budget holes even deeper. As a result, most budget proposals include a litany of reductions to core services that would likely weaken education, health care, and care for the elderly and disabled, among other things — as well as slow the state’s economy and diminish its prospects for long-term growth.
Fortunately, governors’ budget proposals are only the start of the budget process. In enacting their states’ final budgets, legislatures can take a more balanced approach, one that reaches beyond spending cuts to make use of new revenues and remaining reserves.