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The state budget crisis isn’t over yet

at 04:40 PM ET, 10/20/2011

Harry Reid is aiming for a Senate vote this week on a $35 billion jobs bill that would help state and local governments rehire or retain teachers, first-responders, policemen, firefighters. Democrats claim that it will save some 400,000 jobs at a time when state and local budget cuts are forcing these public-sector layoffs. So how do things look for state budgets these days?

The short answer is things are improving, but states are still feeling the squeeze as expenditures continue to outpace revenue. There’s still a $91 billion budget gap for Fiscal Year 2012, according to a recent report from the National Conference of State Legislatures:
(SOURCE: NATIONAL CONFERENCE OF STATE LEGISLATURES)

Things seem to improve thereafter, in 2013 and 2014. But there are already been signs that things will be worse than expected: some states are already reporting that they’re projecting to take in even less revenue in 2012 than they thought when they passed their budgets earlier this year. As the New York Times reports, Washington state is reconvening its legislature for a special session after realizing that tax collections would be $2 billion less than expected. The state is now considering additional cuts as a result. California, New York, Florida and New Jersey are facing similar predicaments. “The states are collecting more in taxes than last year, but not as much as they did before the recession began, and not as much as they expected when they drew up their budgets last spring,” the Times reports.

As such, states are closely watching what Washington decides to do— or not to do. Reid’s state aid bill is only one proposal—the 2012 budget and the supercommittee could both make big discretionary spending decisions that will impact state and local budgets. States are reporting more optimistic and positive news, but they are not out of the woods yet,” William Pound, executive director of the National Council of State Legislatures, said last month. “Several issues, such as the president’s jobs bill, federal deficit reduction and the national economic recovery, could affect the growth states have experienced. It is something NCSL continues to watch closely.”

That’s not to say that the solution to state fiscal health is all in the federal government’s hands. On the whole, state decisions resulted in a net tax decrease of $2.5 billion, reducing their revenue collection by 0.4 percent, the NCSL explained in another recent paper. “Nine states reduced net taxes by more than 1 percent, while an equal number reported net tax increases greater than 1 percent,” the NCSL explains. Florida, for one, raised the corporate income tax standard exemption from $5,000 to $25,000. But the tax changes weren’t universal: there was a net increase of $2.48 billion in personal income taxes, while there was a net decrease in corporate and business taxes ($807 million), as well as sales and use taxes ($5.2 billion).

 
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