Sunday, September 9, 2001

CONTACT: Jim Jaffe, Michelle Bazie
(202) 408-1080


PDF of press release
HTML of full report
PDF of full report

State-level contacts

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With budgets squeezed both by the current economic downturn and, in many cases, by longer-term structural problems, states are responding with a mixture of short-term fixes, spending cuts, and tax increases, according to a new study from the Center on Budget and Policy Priorities.

The Center's study, State Responses to Tight Fiscal Conditions, looks behind the data on how states are faring in the slow economy to examine how states' budgetary responses could affect their fiscal stability if a robust economic recovery does not occur soon. It also provides a more in-depth look at four states — Indiana, Minnesota, Texas, and Virginia — to illustrate the range of issues states are facing and the range of policies they have adopted.

"If the slowdown continues or deepens, more and more states will face budget shortfalls and problems in states already affected could intensify," noted Kevin Carey, a Policy Analyst with the Center's State Fiscal Project and lead author of the report. He added that this year's federal tax cuts will worsen states' fiscal situation by reducing revenue from state income and estate taxes and possibly requiring cuts in future federal grants to states.

"With all these uncertainties, it's important to examine whether states are handling the slowdown in ways that won't cause bigger problems later — especially for low-income and other vulnerable populations, which often are the hardest hit by a weak economy," said Carey.

The budget imbalances some states face are temporary and reflect the slow economy. However, other states — including Tennessee and Texas — have structural problems: their tax systems don't raise the amount of money the state needs over the long term. (Some states face both temporary and structural problems.) Budget-balancing strategies that make sense for states with temporary imbalances could be ineffective or harmful for states with structural problems.

In particular, short-term fixes are a popular alternative to raising taxes or cutting programs, and a number of states are using them to close fiscal gaps. At least seven states (California, Indiana, Kentucky, Michigan, Mississippi, Ohio, and Washington) have begun to tap state "rainy day" funds or other reserves to balance their budgets, for example. In addition, states such as Indiana, New Hampshire, Texas, and Virginia have used accounting gimmicks like artificially shifting expenditures to a later fiscal year or simply raising their revenue estimates without economic justification. "For many states, today's budget gimmick can create tomorrow's budget crisis," said Center Deputy Director Iris Lav, a co-author of the report.

The use of certain short-term measures — such as drawing down rainy day funds or enacting temporary tax increases — may be appropriate in some cases, enabling states to maintain vital services until revenue growth rebounds. However, if an economic slump is prolonged, or if the state's budget imbalance primarily reflects structural problems, these measures will only make it harder for states to balance their budgets in future years.

While some states are adopting short-term fixes to balance their budgets, seven states (Arizona, Indiana, Maine, Nevada, New Hampshire, New Jersey, and West Virginia) have raised revenues significantly. Mississippi, Ohio, and South Carolina have enacted across-the-board spending cuts, while Indiana and Kentucky have set the stage for cuts in Medicaid spending by appropriating less money than the programs are projected to require.

In some cases, states' budget problems highlight the need for better budget information. "Some states may have adopted tax cuts or spending increases in the 1990s without taking into account their ultimate cost," noted Liz McNichol, director of the Center's State Fiscal Project and a co-author of the report. "This made them more vulnerable to budget problems when the economy slowed." Such states, she added, should consider adopting budget process reforms to give policymakers and the public a clearer view of the consequences of policy choices.

A full text of the Center report, State Responses to Tight Fiscal Conditions, is available at the CBPP website,

The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants.

State Group Contact List

Arise Citizens' Policy Project

Kimble Forrister
P. O. Box 612
Montgomery, AL 36101
(334) 832-9060
Indiana Coalition on Housing and Homeless Issues

Beryl Cohen
324 W Morris Street
Indianapolis IN 46225
(317) 636-8819
Pennsylvania Partnerships for Children

Diane McCormick
Deputy Director of Communications
20 N. Market Square, Suite 300
Harrisburg, PA 17101-1632
(800) 257-2030
California Budget Project

Jean Ross
921 11th Street, Suite 50
Sacramento, CA 95814
(916) 444-0500
Kentucky Youth Advocates

Abby A. Hughes Holsclaw
624 Shelby Street
Frankfort, Kentucky 40601
(502) 875 4865
Tennessee Budget Project

Ginger Hauser
2012 21st Avenue, South
Nashville, TN 37212
(615) 385-2221 ex. 23
Colorado Fiscal Policy Institute

Adela Flores
Policy Analyst
623 Fox Street, Suite 300
Denver, CO 80204
(303) 573-5421
Michigan League for Human Services

Sharon Parks
1115 So. Pennsylvania Ave., # 202
Lansing, MI 48912
(517) 487-5436 Ext.212
Center for Public Policy Priorities

Eva Deluna
900 Lydia Street
Austin, TX 78702
(512) 320-0222
CT Voices for Children

Douglas Hall, Ph.D.
Senior Policy Fellow
33 Whitney Avenue
New Haven, CT 06510
(203) 498-4240
Minnesota Council of Nonprofits

Nan Madden
Director, Minnesota Budget Project
2314 University Ave W #20
St. Paul, MN 55114
(651) 642-1904
Virginia Organizing Project

Ellen Ryan
703 Concord Avenue
Charlottesville, VA 22903-5208
(434) 984-4655
Idaho Center on Budget & Tax Policy
Judith Brown
c/o United Vision for Idaho
1412 W. Idaho St.
Boise, ID 83702
(208) 331-7028
North Carolina Budget & Tax Center

Dan Gerlach
P.O. Box 28068
Raleigh, NC 27611
(919) 856-2158
Wisconsin Budget Project of the Wisconsin Council on Children & Families

Jon Peacock
16 N. Carroll Street, Suite 600
Madison, WI 53703
(608) 284-0580 ext. 307
Voices for Illinois' Children

Andrea Ingram
208 South LaSalle, Suite 1490
Chicago, IL 60604
(312) 516-5556