Tags: 46 | States | Budget | Deficits | 112 | Billion

Report: 46 States Face Budget Deficits Adding Up to $112 Billion

By    |   Friday, 25 Jun 2010 04:03 PM

It’s not just the federal budget deficit that’s exploding.

States haven’t been able to cut their spending or increase tax revenue either. The Center on Budget and Policy Priorities estimates that 46 states now face deficits that total $112 billion for the year starting July 1.

That number will likely grow, as revenue continues to deteriorate, the center says. So the total could rise to $180 billion by next June 30.

And the problem isn’t going away the following year, when the red ink could total $120 billion, the center explains.

“As we look ahead to 2011 and beyond, even as the economy appears to be moving in the direction of recovery, states’ fiscal prospects remain extremely weak,” the center says in a report.

“Indeed, historical experience and current economic projections suggest 2011 will be worse than 2010.”

The basic problem is that Democrats are reluctant to cut spending, and Republicans are reluctant to raise taxes to balance state finances.

“States are going to have to cut back spending and raise taxes the same way Greece and Spain are,” Dean Baker, co-director of the Center for Economic and Policy Research, told Bloomberg.

“That runs counter to stimulating the economy and will put a big damper on the recovery in the latter half of this year.”

Sales and income tax revenue for states dropped for five consecutive quarters through the end of last year for the first time in 47 years.

A big part of the problem is that states and municipalities have promised more in health and retirement benefits for their workers than they can afford.

State legislatures must address underfunded pensions, entitlement spending and tax policy to ensure long-term fiscal stability, former Republican New Jersey Gov. Christine Todd Whitman told Bloomberg.

“States don’t have a choice anymore,” she said. “These problems are going to require major surgery.”

Indeed, if states don’t get their act together, their problems will hurt the national economy for the next 50 years, according to a report by the U.S. Government Accountability Office.

But progress is coming very slowly. The Governmental Accounting Standard Board has been working on state pension recommendations for four years. And only this month did it issue a “Preliminary Views” statement.

Even that statement falls short of requiring states to acknowledge all their pension shortfalls. The board didn’t propose a shift to fair value accounting that would force state pension funds to acknowledge their investment losses of 2008.

And changes aren’t expected to be implemented until at least 2013, the New York Times reports.

If New Jersey had to use fair value accounting, its pension shortfall would explode to $170 billion from the $46 billion it reports now.

“This path is not sustainable,” economist Eileen Norcross of George Mason University, told the Times.

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It s not just the federal budget deficit that s exploding. States haven t been able to cut their spending or increase tax revenue either. The Center on Budget and Policy Priorities estimates that 46 states now face deficits that total $112 billion for the year starting...
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2010-03-25
Friday, 25 Jun 2010 04:03 PM
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