States That Can't Pay for Themselves

by Prashant Gopal
Wednesday, October 8, 2008

The Golden State, which recently scrambled to fill a $15 billion budget gap, still may not be able to meet its payroll without help.

California is going to Washington, D.C., to ask for $7 billion to cover its budget shortfall. Otherwise it won't be able to pay for its teachers, cops, firemen, and other essential services. Unfortunately, California won't be alone. A number of other states are experiencing a huge dive in tax revenue and could be going cap in hand to Uncle Sam alarmingly soon. How bad could it get? The potential cost for all the 31 states facing both major and minor shortfalls could be as much as $53.4 billion.

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The data is based on a study by the Center on Budget and Policy Priorities released at the end of September and shows the states that have seen the biggest shortfalls in tax revenue in their fiscal 2009 budgets.

California
Budget gap (as a % of the total budget): 22%
Gap: $22.2 billion


California Governor Arnold Schwarzenegger warned this week that the state might need to borrow $7 billion from the federal government, if credit markets don't ease, to pay for salaries and other operating costs. The state, which has been battered by falling home prices and foreclosures, enacted a budget that imposed cuts to the state's health insurance program for the poor and other social service programs.

Arizona
Budget gap (as a % of the total budget): 19.9%
Gap: $2 billion

Arizona was hit hard by the subprime crisis, and its economy has slowed significantly since mid-2006. Lawmakers, who had to make up a $2 billion budget shortfall for fiscal 2009, reduced the Medicaid rolls, put a freeze on hiring, and cut funding for community health centers and state universities.

Florida
Budget gap (as a % of the total budget): 19.9%
Gap: $5.1 billion

The Florida housing slump is one of the worst in the nation and only appears to be getting worse. The $66 billion Florida budget for the coming year is about $6 billion less than the one approved the previous year. It includes a $332 million reduction in public school spending and cuts to state hospitals, nursing homes, and various social programs.


Nevada
Budget gap (as a % of the total budget): 16%
Gap: $1.2 billion

Nevada has the worst foreclosure rate in the nation, and its economy has slowed dramatically this year. The governor capped the state's children's health program and increased children's health-care premiums, and cut funding for K-12 education, higher education, and welfare.

Rhode Island
Budget gap (as a % of the total budget): 13.1%
Gap: $430 million

Rhode Island's economy has been weakened by its housing market, one of the worst in the nation. Lawmakers are trying to make up for a $430 million shortfall in their budget with proposed cuts to the public college system and aid for municipalities, as well as tighter limits on welfare benefits.

New York
Budget gap (as a % of the total budget): 9.8%
Gap: $5.5 billion

New York, which had a $4.9 billion budget gap, faced an additional $630 million shortfall after the budget was enacted. The state made cuts to the health insurance program for low-income families, froze hiring, and enacted tax and fee increases.


Alabama
Budget gap (as a % of the total budget):
9.5%
Gap: $784 million

Alabama closed some corporate tax loopholes, and made cuts to colleges and universities.

Georgia
Budget gap (as a % of the total budget): 8.7%
Gap: $1.8 billion

The state's economy has been impacted by a slowing housing market. The governor has asked state agencies to cut 4% to make up an expected shortfall in the $21 billion budget for the coming fiscal year.

New Jersey
Budget gap (as a % of the total budget): 7.7%
Gap: $2.5 billion

The state's economic slump is due to the weak housing market and rising inflation. The state legislature passed a $32.8 billion budget that is $600 million less than last year's budget. New Jersey plans to trim the budget by offering early-retirement incentives for state employees and through attrition.


Maryland
Budget gap (as a % of the total budget): 7.2%
Gap: $1.1 billion

Maryland enacted a $1.35 billion tax increase in late 2007, which (along with $277 million in budget cuts passed by the General Assembly) is designed to help address the state's deficit. However, a continuing economic weakness has led to an additional $270 million gap, which is likely to be addressed by further spending cuts.

Source: Center on Budget and Policy Priorities

Editor's note: The budget gaps include the shortfalls before the budget was adopted, along with any additional midyear gaps.

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