Fiscal Outlook

All signs are pointing to a revenue rebound for most states in the Midwest in fiscal year 2011. However, thanks in large part to a loss in federal funding, state lawmakers will face perhaps their biggest fiscal challenge yet in crafting FY 2012 budgets.

This presentation on state fiscal issues covers five broad areas.   Part I highlights the fiscal position of states in the aftermath of the Great Recession while Part II highlights some state strategies to balance budgets and generate revenue.  Part III identifies several structural flaws in state tax systems that will continue to plague state finances going forward while Part IV explores some of the major expenditure categories looming on the state fiscal horizon.  Finally, Part V hones in on some of the “green shoots of growth” and the promising economic development projects that will contribute toward reviving state economies.

Congress came through with additional Medicaid assistance to help states finish out the 2011 fiscal year—but the aid is an estimated $1.74 billion short of what 24 states had hoped for, according to a survey by The Council of State Governments.

E-newsletter Issue #53 | August 19, 2010

It was a lot to take in on Monday morning, but faced with grim economic news from Charles Colgan, economist and professor of public policy at the University of Maine, two U.S. governors and a deputy premier from Canada still managed to remain optimistic.

Yes, the current recession is deeper and longer than originally anticipated, Colgan said Monday morning at The Council of State Governments Eastern...

This week the National League of Cities, the National Association of Counties, and the U.S. Conference of Mayors released a survey that indicated that local governments would be forced to slash over 500,000 jobs if Congress does not pass a $75 billion local jobs bill. 

States continue to eye national economic signals warily as they recover from the extraordinary rigors of the Great Recession—the longest, deepest, broadest and most severe economic crisis since the Great Depression. Given the up and down nature of the recovery, some have speculated the U.S. economy could face the possibility of a dreaded “double dip” recession, a recession that’s followed by a short recovery and then another recession.

Ezra Klein of the Washington Post asks this question:  "Did the stimulus a) work; b) fail; c) end up locked in an unexpected battle with the massive anti-stimulus that's ripped through the states?"

Unemployment rates remain high and people are unemployed for longer, exhausting state unemployment trust funds quickly.  More states are borrowing from the federal government to cover costs, which could have an impact on future fiscal stability.

Fiscal conditions rapidly deteriorated for states in the 2009 fiscal year as the nation remained in a prolonged economic downturn. States experienced unprecedented declines in both revenues and state spending, while rainy day fund levels sharply declined from the 2008 fiscal year. While the national economy may be slowly recovering, conditions have not improved for states in the 2010 fiscal year. State spending is projected to be negative for the second year in a row. Revenue collections remain weak, with total collections declining for a record five consecutive quarters. The state fiscal outlook is expected to remain grim in fiscal 2011 and beyond as Recovery Act funds decrease and revenues are slow to recover.

States’ fiscal environments continue to feel the devastating effects of the recession, even though many economists have concluded the recession ended last summer. Economic output—gross domestic product—rose during the third quarter of the 2009 calendar year, albeit at a modest 2.2 percent annual rate, and the economy is expected to continue growing. But state tax revenues have not shown evidence of an expansion as revenues are still falling in many states, and it will likely be a number of years before tax revenues recover.