It’s not just the federal budget deficit that is expanding massively: state budget deficits are reaching worrisome levels as well.
Earlier this year, states faced an aggregate shortfall as high at $121 billion, according to a report from the National Conference of State Legislatures.
State law requires budgets to be balanced, so states have rushed to cut spending and raise revenue. But they still must erase $27.6 billion of deficits before their fiscal year ends, which is June 30 for 46 states.
In addition, they must eliminate $67.5 billion of deficits from their fiscal 2010 budgets by the same date.
That leaves states with a total hole of more than $95 billion to plug.
The result: state governments are making huge reductions in spending on education, social services, health care, police and fire services
"We're getting to the point where budget cuts are getting so deep that fundamental and priority state services are being affected," Corina Eckl, the report’s author, told CNNMoney.com.
Federal money from the $787 billion fiscal stimulus package will provide some relief. But that will only eliminate an estimated 40 percent of the state deficits.
Even Warren Buffett has voiced concern about the ability of state and local governments to pay off their debts. And Moody’s recently announced a “negative outlook” for the credit status of all local governments.
That means municipal bonds aren’t the safe investment they used to be.
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