News Release - What Happens When the Money Runs Out? New Rockefeller Institute Report Examines State Budgets and the Federal Stimulus Package

For Immediate Release –

February 19, 2009

Media contact: Mark Marchand – (518) 443-5283 / marchanm@rockinst.org

What Happens When the Money Runs Out? New Rockefeller Institute Report Examines State Budgets and the Federal Stimulus Package

States Will Once Again Face ‘Severe’ New Gaps, Study Finds

Albany, N.Y. — While states will benefit greatly from the federal stimulus program – receiving over $150 billion over three years – state budget gaps still loom at the end of that period, according to a new report issued today by the Rockefeller Institute of Government.

The report, written by Institute Senior Fellow Donald J. Boyd, says that even under the most optimistic of scenarios, state tax collections will not return to pre-recession levels until well after the 2011-2012 fiscal year, when the bulk of new assistance for states will end. At that time, states will once again face severe budget gaps, the study finds.

“The economic and revenue picture for states is uncertain,” the report says. It adds, “Under any likely scenario, states will face significant budget problems when the new federal aid runs out.”

When most of the stimulus provisions expire, Boyd said, states could face budget gaps that range from four to six percent of general expenditures – a nationwide total of $70 billion to more than $100 billion. Before accounting for new federal aid, states face an estimated overall gap of $100 billion in the coming fiscal year.

The report estimates “baseline” spending by states will rise by 4 to 4.8 percent annually during the study period. It examines a “low-gap” and a “high-gap” scenario based on varying estimates of economic growth and says, “The combination of flat or declining revenue plus growing baseline spending leads to fiscal gaps under both scenarios.”

“Budget gaps in fiscal 2012 will likely rival the critical shortfalls that states faced before enactment of the new stimulus package,” according to the report. “Cuts or reductions in growth of spending on education, health care, and other programs, and/or major tax and other revenue increases, will almost certainly be on the table once again.”

The study used state tax revenue trends following the recessions of 1981, 1990, and 2001 to develop projections applied to the current recession. After most recessions, Boyd said, tax collections have taken two to three years to return to normal levels. Following the 2001 recession, it took over five years for state tax collections across the U.S. to return to pre-recession levels.

The study used state tax revenue trends following the recessions of 1981, 1990, and 2001 to develop projections applied to the current recession. After most recessions, Boyd said, tax collections have taken two to three years to return to normal levels. Following the 2001 recession, it took over five years for state tax collections across the U.S. to return to pre-recession levels.

For a full copy of the report, visit www.rockinst.org.

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About the Rockefeller Institute of Government

The Nelson A. Rockefeller Institute of Government, at the University at Albany, is the public policy research arm of the State University of New York. The Institute conducts fiscal and programmatic research on American state and local governments. Journalists can find useful information on the Newsroom page of the Web site, www.rockinst.org.

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