What recovery? Budget deficits get worse for states.

Budget deficits for 2010 have worsened in 39 states in the past two or three months, according to a new analysis by the Center on Budget and Policy Priorities.

State budgets are sliding deeper into the red than many governors and legislators expected only a few months ago.

As a result, states including Washington and Minnesota will have to find ways to fill their widening deficits.

On Friday, a new analysis by the Center on Budget and Policy Priorities (CBPP), a Washington think tank, found that the 2010 budget situation has worsened in 39 states in the past two or three months. The new, additional gap: more than $34 billion.

“The shortfall is emerging as forecasts and data catch up to reality,” says Nicholas Johnson, a co-author of the CBPP analysis. “Some states haven’t done an official budget projection since last spring,” says Mr. Johnson, who is director of the organization’s state fiscal project.

This past spring, most states were still trying to recover from trying to fill their 2009 budget gaps. Many used rainy-day funds and one-time gimmicks, and they borrowed as much as their constitutions allowed. Some, such as Connecticut, North Carolina, and Hawaii, raised taxes on the highest-income residents.

The stimulus package passed by Congress in February helped states cover 30 to 40 percent of their shortfall. But revenues have continued to decline for most states.

For fiscal year 2010, CBPP estimates, 48 states are facing budget shortfalls that total $190 billion. (This figure includes the new gap of about $34 billion.)

The following year is not much brighter, with some 41 states anticipating deficits. Initial estimates for 2011 put the gap at $97 billion, but Johnson estimates that the shortfalls are likely to be closer to $180 billion. “By then, we will have seen the end of the federal aid,” he says.

State revenues, like employment numbers, often lag behind any improvements in the national economy.

“We are expecting the unemployment rate to remain above 10 percent through much of calendar year 2010 and then go down in 2011,” he says. “If it improves faster, it would make a dent in the budget deficits – but in no way fast enough to wipe out the shortfalls.”

On Wednesday in Washington, the House passed a $154 billion jobs bill. It includes $46 billion in aid to states, which would mostly go to help them in 2011. Half of the money is an extension of the increase in the federal share of the Medicaid program. The rest of the money is designated for jobs in education.

However, it won’t be enough for many states. According to the CBPP, 30 states have already enacted tax increases, raised tuition at state universities, or found other revenue methods. For example, only this week, the Missouri Department of Revenue told yoga studios to begin to collect a 4 percent recreation sales tax on class fees.

At the same time, many states are looking at service cuts. According to the CBPP analysis, 28 states have enacted or implemented cuts to reduce the eligibility of low-income families for health coverage. Some 42 states and the District of Columbia have proposed or implemented cuts to the state workforce.

In New York, Gov. David Paterson (D) has warned that the state has a severe cash-flow problem this month. He has reduced payments to school districts and counties.

Also, he has been critical of a plan put forth by the Legislature to either cut or raise $2.7 billion since it does not address the state’s long-term structural imbalance.

On Friday, outgoing Virginia Gov. Tim Kaine (D) proposed $2.3 billion in budget cuts to try to cover a $4.2 billion shortfall in the budget from 2010 to 2012. Included in the proposal is the elimination of 1,879 jobs and 664 layoffs, including some jobs at the University of Virginia.


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