New GAO report predicts short and long-term fiscal challenges for states

A new report out today by the U.S. Government Accountability Office explains that, while tax receipts have improved slowly alongside national economic recovery, state and local governments still face short and long-term fiscal challenges. In the short term, the loss of ARRA funding will continue to place downward pressure on state spending and although tax receipts have now returned to prerecession levels, with income and sales tax leading most of the gains, the tax growth rate flattened out in 2011. In the long term, rising health-related costs – primarily Medicaid – will continue to increase the gap between receipts and expenditures in the coming years absent any major intervention or policy changes.