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State government spending

Sujit CanagaRetna

After months of declines, state tax collections are starting to trend upward. Even so, Sujit CanagaRetna, senior fiscal analyst for the Council of State Governments (CSG) in Lexington, Ky., sees a challenging fiscal future for states.

"For the upcoming two years [fiscal years 2011 and 2012], it is estimated that states will face shortfalls of about $260 billion even after taking into account aid from the federal government," CanagaRetna tells Govpro.com. "Given the balanced budget requirements enshrined in almost every state constitution, state policymakers will continue to slash spending, expand gaming, tap rainy day funds, and raise taxes and fees to bridge the shortfalls."

And that follows on the heels of the Great Recession, which has steadily shrunk state budgets in recent years, CanagaRetna notes.

Nicholas Johnson

Dwindling assistance from Washington also will affect state coffers next year, says Nicholas Johnson, director of the State Fiscal Project at the Washington-based Center on Budget and Policy Priorities. "Federal aid to states that was enacted in the federal Recovery Act will expire midway through 2011," he says. "We project the remaining budget gap that states must face to equal $140 billion [in2011 fiscal year]. The spending cuts that states would have to make to address that shortfall could cost the economy 900,000 public- and private-sector jobs."

Johnson's organization works at federal and state levels on fiscal policy and public programs that affect low- and moderate-income families and individuals.

There is a bright side, explains Johnson. "A number of states are abandoning the cuts-only response to these shortfalls and are taking a more balanced approach that includes revenue measures; some 33 states have raised taxes or tax-like fees, ranging from small increases to major revenue packages," he says. "Another piece of good news is that both houses of Congress have voted [in separate bills] to extend the federal aid through the end of the next fiscal year, and we hope such legislation will be enacted soon so as to mitigate budget cuts in the coming year."

On the subject of revenue enhancers, legislators in two states have voted to raise cigarette taxes so far in 2010, with a half dozen other states considering increases, according to the federal Centers for Disease Control and Prevention in Atlanta.

In New Jersey, the transportation commissioner wants to plug some of the its $11 billion budget deficit by selling the naming rights to a dozen New Jersey Turnpike rest stops and eight service areas on the Garden State Parkway. NJ DOT Commissioner James Simpson believes corporations and other organizations may be willing to spend as much as $10 million to secure naming rights to just one location.

CanagaRetna sees other reasons for optimism in state capitals: "There are a number of exciting and promising economic development projects thriving in states across the country involving such areas as bio-tech, renewable energy sources — including wind and solar — and manufacturing, including aviation and automobiles. These high-tech, high-wage jobs offer optimism and the promise of improved economic times going forward."

Next: Local government spending >