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Podcast: Governors’ Budget Proposals and the Economy

In this podcast we will discuss the budgets that governors across the country are proposing for the coming year and what they mean for the economy. I’m Shannon Spillane and I’m joined by the Deputy Director of the Center’s State Fiscal Project, Jon Shure.

1. Jon, many governors have issued their budget proposals for the upcoming budget year, which starts on July 1, 2010 in most states. What are some of the trends that you are seeing?

Most governors are proposing a new round of very deep spending cuts. That’s because the recession continues to cause a dramatic decline in the revenues that states need to provide services like education and health care. In fact, most of the governors who’ve released a budget proposal so far, call for smaller budgets for the coming year than their states spent in 2009 - typically by 5 to 10 percent.

2. What kinds of cuts are governors proposing?

Big ones. Arizona’s governor would eliminate the state’s children’s health insurance program which covers 47,000 kids -- and discontinue Medicaid coverage for over 310,000 adults with low incomes – many with serious mental illnesses.

Mississippi’s governor proposed to cut state funding for public schools by over 9 percent and close four state mental health clinics.

New York’s governor proposed deep education and health care cuts.

And those are just a few examples. And keep in mind that because of the recession states face rising numbers of people who need these public services.

3. A recent report from Goldman Sachs projects that economic growth will slow later this year, in part because of state and local budget cuts. What do state budgets have to do with the economy?

State spending cuts weaken the economy and jeopardize recovery. Cuts in spending means states lay off employees, cancel contracts, cut payments to businesses and nonprofits that provide direct services, and cut benefit payments to individuals.

This means companies and organizations have less money to spend on salaries and supplies, and people have less money to spend for everything.

The impact of that ripples throughout the economy. The bottom line is that it costs jobs.

4. Jon, the federal Recovery Act provided billions of dollars in aid to states – known as fiscal relief – to help them reduce the size of cuts and layoffs this year. Will states get this kind of aid again for the coming year to help them avoid making the harsh cuts that governors are proposing -- and to avoid hurting the economy?

They sure need it. But we don’t know yet if they’ll get it. As you mentioned, federal assistance to states from the Recovery Act made a huge difference in helping states avoid more harmful spending cuts. That protected the economy – but the assistance is set to run out halfway through the coming budget year.

Without more federal assistance, states will likely make even more massive new spending cuts at a time when unemployment is expected to be at or near double-digits and the economy will still be fragile.

This could cost the economy up to 900,000 jobs and stop the recovery right in its tracks.

5. What action is needed to get more help for states?

Congress needs to extend state fiscal assistance and do it quickly, so governors and state legislators don’t make more harmful cuts and put the economic recovery at risk.

Right now, Congress is working on a jobs bill. Extending state fiscal relief is one of the best ways to protect and create jobs. It needs to be included in this legislation.

Thanks for joining me, Jon.