State Budgets Looking Up, But from a Deep Revenue Hole, Cont.

Yesterday I posted about state budget conditions.  Readers may want to know how we calculate state shortfalls.  Here are the basics:

• We use data from states’ own estimates.  In cases where a state prepares more than one estimate, we use the estimate that best reflects the shortfall as defined below.
• A budget shortfall is the gap between a state’s projected revenues and the funds it would need to continue to provide the existing level of services.  In other words, it reflects the budget hole that states addressed, or will address, in order to balance the budget.
• These shortfalls are measured before the state has taken actions to close the gap, such as spending cuts or tax increases.  The shortfall typically also excludes the effect of funds that the federal government provided to states under the 2009 Recovery Act.
• For each year, we combine the shortfalls that states projected before they adopted their budgets with any new gaps that opened up during the course of the year, such as if revenues came in lower than expected.
• Our reports focus on states’ general fund budgets (as opposed to, say, their capital budgets), for two reasons.  First, these budgets account for most of the money that states spend from their primary revenue sources, such as income and sales taxes.  Second, the general fund is typically the budget that is subject to a balanced-budget requirement, so states must address these shortfalls.
• We report both the dollar amount of the shortfall and its percent of general fund spending in order to compare states’ shortfalls.
• States have mainly closed the shortfalls that our report shows for fiscal year 2011 and earlier.  To close these gaps, states made tough decisions about service cuts, revenue actions, efficiencies, and other budget balancing measures, as I noted earlier.  Our shortfall numbers attempt to quantify the extent of those difficult decisions, to show just how big a challenge the fiscal crisis has posed and continues to pose to state budgets.