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Fiscal Survey of the States Shows Depth of Budget CrisisDecember 18, 2008—The National Association for State Budget Officers has just released, "The Fiscal Survey of the States." Published in conjunction with the National Governors Association, the report predicts a $30 billion shortfall for FY2009 and says that it could be $60 billion or even higher in FY2010. While governors typically protect elementary and secondary school funding from budget cuts, Brian Sigritz, staff associate for NASBO who spoke to AEP's Government Relations Committee, said that K-12 funding has already been cut in a few states such as Alabama, and several more are considering it. In order to understand the depth of the recession and its effect on local governments, Sigritz placed the current economic crisis in historic perspective.
Personal income tax revenues are a key factor in state budget health. The majority of states must balance their budgets by the end of the fiscal year, but they sometimes borrow money to cover shortfalls until tax revenues come in. Even though the credit crisis has subsided a bit, according to Sigritz, states are still paying higher interest rates. Coupled with the fact that the unemployment rate continues to rise, states can already estimate their potential shortfalls. Sigritz said that some states will need multiple rounds of budget cuts. In addition, Sigritz explained why the downturn is hitting state and local coffers harder than it did post-9/11. While housing prices continued to rise in 2001, they have dropped considerably in FY2009, which means states and local polities are collecting lower taxes. Besides the obvious immediate effect on local revenues and cash flow, Sigritz emphasized that a large portion of K-12 funding comes from local property taxes. Finally, when states anticipate problems with balancing the budget, they have three basic actions they can take: cut spending, which the majority are already considering or have done; raise taxes, which is not considered politically viable; and use their rainy day funds. Unfortunately, even though states have been doing a good job of setting aside money, they have only enough to cover 7% of expenditures. Just as it took a while for the recession to be truly felt at the local level, even if it ends in six months, economists predict that the states won't recover for 1-2 years. If the recession lasts longer, local economies will need 3-4 years to mend. While Sigritz has no specific information on which economic stimulus package Congress will pass, he said it is easier for the federal government to give states more money for a program like Medicaid as there is an existing system for distributing those funds directly to the states. Moreover, providing more federal funding for Medicaid immediately frees up state monies for other budget items. Block grants, which allow the states to choose how they allocate federal money, are another possibility, but are politically charged. Sigritz advised publishers to focus on to finding creative pricing and product solutions for their customers that could ease expenditures. For more information "The
Fiscal Survey of the States" "Ala.
gov making biggest education cuts in 48 years" | |||||
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