Fiscal Outlook

CSG South

This presentation discusses some of the actions taken by states in grappling with the serious fiscal challenges that have arisen in the past few years. It consists of two interconnected parts. Part I looks at broad national economic trends and some trends at the state level. Part II delves into some of the more innovative strategies adopted by policymakers to overcome the budget shortfalls that have plagued states for almost four consecutive years now.

The state fiscal boom of the late 1990s was driven by exceptional forces unlikely to be repeated in the years ahead. The bursting of this fiscal bubble has made the current budget crisis far worse than the relatively mild current economic weakness might suggest. Even after the economy recovers, state finances are likely to be tight for the next several years.

This essay describes some recent patterns of state financial activity – how the state governments obtain their revenues, the types of activities on which they expend their resources, their reliance on economic resources such as borrowing and the state of their financial assets. The analysis relies primarily on data from U.S. Census Bureau surveys of state and local government finances, the most complete set of comparative information available. It is primarily a retrospective look, using the information for fiscal year 2000 and comparing that with trends from prior years. The final section looks at a few present-day issues and prospects for state finances.

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