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Podcast: New Fiscal Year Brings More Tough Times for States

In this podcast, we will discuss what the new fiscal year brings for states. I’m Shannon Spillane and I’m joined by Policy Analyst Phil Oliff.

1. Phil, July 1st marked the beginning of the new fiscal year for many states. As with a new calendar year, one likes to start fresh with hopes and goals. Is there any reason for states to celebrate this year?

Unfortunately, most states have little reason to celebrate the new fiscal year. They’ve already been through a few very difficult budget years and this new year could be the toughest yet. Revenues are still way down due to high unemployment, and at the same time, demand for state services is actually increasing. As a result, states faced a combined state budget shortfall of $140 billion for this year.

2. What kinds of cuts will states be forced to make in order to close these budget gaps?

States are cutting spending on just about everything at this point and residents are really feeling the impact. Kids in Virginia will return to more crowded classrooms this fall. Public university students in Florida will face tuition bills that have jumped by about a third in the last two years. In Minnesota, almost 10,000 college students will lose financial aid because of higher education funding cuts.

And 2,000 elderly people from Oregon with Alzheimer’s disease will lose a program that allows them to get care at home rather than in an institution.

3. What sort of consequences will these budget cuts have on the economy overall?

The implications for the economy are truly frightening. Without more federal aid, closing the $140 billion gap could cost the economy up to 900,000 public- and private-sector jobs.

That’s because state spending cuts ripple through the economy. When teachers and cops get laid off, they spend less money at local businesses. When governments cancel contracts with vendors, those vendors in turn have to lay people off.

This ripple effect will put a drag on the economy’s recovery and could even put us at risk for a double dip recession.

4. It sounds like states are in a real bind. Is there anything the federal government can do to help?

Congress really needs to extend aid to states. This will help to bring a little hope to this dismal situation: jobs will be spared, education and health services will be preserved and the economy will avoid further damage.

Thanks for joining me, Phil.