We recently updated our analysis of state budget shortfalls, showing that states still have a long road ahead. They face:
While the huge deficits of recent years have caused severe problems for states and localities that are struggling to maintain needed services, this is a cyclical problem that ultimately will ease as the economy recovers.
As we explained in a major report last week, these cyclical deficits are distinct from the longer-term issues related to bond indebtedness, pension obligations, and retiree health insurance. States can address these latter issues — the size of which often has been exaggerated in recent months — over the next several decades. It is not appropriate to add these longer-term costs to projected operating deficits and declare that states are in a crisis that’s too deep for them to handle.