Bloomberg News

U.S. States Face $40 Billion in Deficits in 2013, Groups Say

December 08, 2011

(Updates with comment from group in seventh paragraph.)

Nov. 29 (Bloomberg) -- U.S. states must tackle at least $40 billion in budget gaps in the year beginning in July as federal stimulus funds decrease and expenses rise, according to a survey released today by the National Governors Association and the National Association of State Budget Officers.

Not all states have made forecasts for that year -- only 17 made deficit predictions -- and most are still grappling with shortfalls for fiscal 2012 that total $95 billion, the groups said. Revenue, while improved in 2012, won’t meet costs in areas such as health care and prisons, the report said.

“Growth is weak and there is not enough money for all of the bills coming in,” said Scott Pattison, executive director of the budget officers group, in a statement. “State officials will still be cutting some programs, and increases in funding for any program except for health care will be rare.”

Fourteen states are showing signs of economic stress, even after the 18-month recession ended in June 2009, according to Bloomberg Economic Evaluation of States data comparing the 12 months ended June 30 with the year-earlier period. Today’s survey shows that their struggles aren’t over.

So far in the fiscal year, 15 states are seeing revenue outpace estimates, 22 states are in line, and seven are recording lower-than-expected collections, according to the report. The national economy may harm revenue collection, the survey said.

Hamstrung Governments

States are also limiting their flexibility by letting tax increases expire, according to the paper. Their budgets reflect a decrease of $2.6 billion in levies and fees, the report said.

“There’s no hue and cry for more taxes,” Dan Crippen, executive director of the Washington-based Governors Association, told reporters during a conference call today.

Officials will have less room to maneuver in emergencies, with reserves, deemed by the groups as a “crucial tool,” making up 6.2 percent of expenditures in fiscal 2012, compared with 12 percent in 2006.

“There’s a squeeze from virtually every side the states are facing,” Crippen said, pointing to lower property values, declining sales taxes, loss of federal funding, and higher demand for services.

States generally don’t expect their budgets to return to prerecession levels until 2014 or 2015, Pattison said during the call.

--Editors: Stephen Merelman, Mark Tannenbaum

To contact the reporter on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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