U.S. states are preparing for more budget cuts next year as tax revenue isn’t likely to rebound enough to replace almost $38 billion in aid that will be gone as federal economic stimulus ends, according to a report.
At least 31 states and Puerto Rico are forecasting deficits of $82.1 billion in the next fiscal year even as tax receipts are picking up, the National Conference of State Legislatures said today. Under a temporary mandate since 2009, the U.S. has provided economic aid to states, helping to pay government workers and shoulder the cost of the Medicaid program to provide health care for the poor. That aid will be gone, the group said.
“Although a recovering national economy is helping to stabilize state revenues in fiscal year 2011, serious budget challenges await state lawmakers in the new year,” the group said today in the report. “This largely stems from fewer federal stimulus funds available for next year’s budgets.”
The report, which says states will get $37.9 billion less in stimulus money in fiscal 2012 compared with 2011, is the second in as many weeks to warn of renewed financial pressure on states as the funding winds down. Last week, Raymond Scheppach, executive director of the National Governors Association, said states may confront $175 billion in budget gaps through June 2013, forcing leaders to weigh spending cuts and tax increases.
As stimulus programs under the 2009 American Recovery and Reinvestment Act conclude and the money they have supplied stops flowing, it “will create big holes in state budgets -- what many officials are calling the ‘ARRA cliff’,” the report said.
Cost Pressures
State governments are also dealing with cost increases for health-care services and primary and secondary education, the Denver-based legislature group said today in its report. As rising unemployment left more without health insurance, Medicaid enrollment jumped to 48.6 million nationwide by December 2009, rising at an 8.4 percent annual rate, according to the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured.
Republican governors, who will lead a majority of states next year as a result of the Nov. 2 elections, have said the fiscal imbalances will require them to reduce the size of government in Ohio, South Carolina and Pennsylvania.
The fiscal 2012 deficits come on top of at least $110.6 billion in gaps that have been dealt with or are pending for the current year, the group said. Imbalances totaling $66 billion are projected for fiscal 2013 by 19 states, according to the report. In most states, the fiscal year begins in July.
So far, the largest 2012 gaps are forecast in Nevada, where the deficit is about one-third the size of the state’s general fund, New Jersey, at 26 percent of general-fund spending, and North Carolina, at 20 percent, according to the report. Some states, including Illinois, haven’t provided forecasts, the group said.
Welcome News
State tax collections are beginning to recover from the slide brought on by the recession and the ensuing crisis on Wall Street, according to the report.
In November 2009, 10 states reported cutting their revenue forecasts for all of their major taxes and collections still fell short of those diminished estimates, according to the group. This year, no state is in a similar position, it said.
That is in line with a report last month from the Nelson A. Rockefeller Institute of Government in Albany, New York. That group said state tax revenue rose 3.9 percent in the third quarter from a year earlier, the third consecutive gain.
“As revenues improve, officials are using terms like ‘modestly upgraded’ and ‘slightly above estimate’ to describe the performance of major taxes,” according to today’s report. “Others are even more positive about performance. This revenue recovery is welcome news for state lawmakers.”
© Copyright 2025 Bloomberg News. All rights reserved.