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Few Cheers for New State Budget Year

Most states rang in fiscal year 2012 on a sour note this month, enacting unnecessarily deep spending cuts that will harm residents ranging from schoolchildren to seniors and weaken economic growth.

A major report we released today finds that at least 38 of the 47 states with new budgets are cutting K-12 education, higher education, health care, or other key public services for 2012.  While states continue to face rising numbers of children enrolled in public schools, students enrolled in universities, and seniors eligible for health and long-term care services, most states (37 of 44 states for which data are available) plan to spend less on services in 2012 than they spent in 2008, adjusted for inflation — in some cases, much less.

State lawmakers no doubt faced tough decisions this year, with revenues still far below pre-recession levels and emergency federal aid all but expired.  Still, our review shows that the cuts are unnecessarily harmful, unbalanced, and counterproductive.

Here’s what we found:

  • State cuts to services are some of the deepest yet and come atop three previous years of cuts.  For example, Washington cut an amount equal to $1,100 per student in K-12 funds for reducing class size, extending learning time, and providing professional development for teachers. Florida cut funding for state universities, leading them to increase tuition for the new school year by 15 percent — which brings the cumulative tuition increase since 2009 to 52 percent.  Arizona has frozen enrollment in part of Medicaid, leaving  an estimated 100,000 low-income people who previously would have qualified unable to get health coverage through the program.None of these states took a balanced approach to closing its budget shortfall by raising new revenue, which would have enabled it to balance the budget with fewer harmful cuts.  In fact, two of these states — Arizona and Florida — made matters worse by enacting tax cuts.
  • A dozen states cut taxes for corporations and the wealthy, effectively paying for these tax cuts through larger budget cuts affecting children, students, struggling families, and seniors.  For example, Ohio eliminated its estate tax at a cost of about $280 million a year, while sharply reducing support for state universities, resulting in tuition and fee increases for students.  Missouri eliminated a corporate tax at a cost of $25 million in the coming year (and much more in the future), while failing for the second straight year to meet the statutory funding formula established to ensure equitable distribution of state dollars to school districts.  And Michigan enacted a tax cut that will exempt tens of thousands of businesses from taxation, while slashing its Earned Income Tax Credit for low-income working families by more than two-thirds.
  • Some states left money on the table. Six states that faced shortfalls for 2012 had sizable rainy-day reserve funds at their disposal — funds meant to be used in times just like these.  Yet only Nebraska chose to use some of those funds.  Texas, on the other hand, faced a massive $18 billion shortfall for its two-year budget period yet chose to leave $6 billion in reserves untouched and instead carved more deeply than necessary into education, child welfare, and health spending.

Just a few states took a balanced approach to addressing shortfalls. Five states — Connecticut, Hawaii, Maryland, Nevada, and Illinois —raised new revenues to go along with spending cuts to balance the budget.

The cuts-only approach that most states have taken will slow the recovery and weaken the nation’s economy over the long term.  State and local governments already have shed 577,000 jobs since August 2008; another round of cuts will lead to further job loss in the months ahead.  The cuts will also lead states to cancel contracts with vendors, reduce payments to businesses and nonprofits that provide services, and cut benefit payments to individuals — all steps that remove demand from the economy.  And, by diminishing the quality of elementary and high schools, making college less affordable, and reducing residents’ access to health care, states threaten to make the U.S. economy less competitive in coming decades.