Revenue

As voters determined who would be governing their states and the nation on Tuesday, they also made decisions on a myriad of ballot initiatives, referendums and legislative measures.  In total, there were 160 ballot proposals in 37 states, many of which were related to fiscal and economic issues.  According to the Initiative and Referendum Institute, taxes – as in past years – were the number one issue on state ballots in 2010.  Measures concerning property taxes found their way on to a number of state ballots this year, along with income taxes, sales taxes, fiscal limits, fees and miscellaneous taxes, rainy day funds, and changes to legislative procedures and voting requirements related to budget issues. 

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.

Fearing that Congress is not going to approve the enhanced Medicaid match extension incorporated into the state's FY 2011 budget, Governor Sonny Perdue has ordered a 4 percent cut to state agencies starting in August.

CSG has completed a survey of states' adopted FY 2011 budgets and whether they count on Congressional approval of extending the Medicaid enhanced match started under the 2009 stimulus.

Just days after the new fiscal year starts for most states, 23 states already face budget gaps unless Congress passes an extension of the enhanced Medicaid match started under the federal stimulus legislation.

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.

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.

During times of recession, businesses cut back because of a lack of demand for their products, but not so for state governments. As states are losing revenue and having to make do with less—residents hit hard by the down economy often need government services more.

With falling revenues, unprecedented declines in state spending and a national unemployment rate hovering around 10 percent, states face limited options for deficit mitigation as they enter into what will likely be one of the worst budget years since the Great Depression. Facing combined budget gaps exceeding $130 billion over the next two years, along with significant increases in Medicaid spending, this session provided state officials with an overview of the policy responses required to enact transformational changes delivering services as well as options available for deficit mitigation.

On May 21, 2010, Paul Priest, Assistant Director, Texas Legislative Budget Board, gave a presentation as part of the CSG Economic Summit on the States' panel: "Closing the Gap: Options for Deficit Mitigation."

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