Where does the buck stop when the bucks stop? It's tempting to seek a scapegoat for state budget woes, and critics have been quick to blame lawmakers. But a closer examination of the facts points to causes outside of policymakers' control.

• Author: Eckl, Corina

It's been a tough two years for state legislatures. Facing the worst fiscal conditions since the Great Depression, states have struggled through a sea of red ink to balance budgets with woefully inadequate revenues.

The fiscal problems in 2002 were amplified in FY 2003. Lawmakers made painful decisions to close a cumulative $50 billion shortage. But the pain was far from over. Just months into the fiscal year, a new gap of nearly $30 billion opened.

Policymakers explored every possible avenue to close the shortfalls. The wide array of actions included tapping reserves, which continued a three-year plummet from record levels just years earlier. Aggregate reserves--which include year-end balances plus rainy day funds--dropped 48 percent during FY 2003. Thirty-four states saw their balances decline, some significantly. Only a few states reported any improvement.

REVERSAL OF FORTUNES

Anemic revenue performance largely explains the latest round of state fiscal problems. The robust growth that began in the mid-1990s took a nosedive in 2001. The decline has been remarkable.

A staggering 40 states collected less revenue in FY 2002 than they did the year before, according to the Rockefeller Institute of Government in Albany, N.Y. Subsequent data collected by the National Conference of State Legislatures showed a dozen states taking in less in FY 2003 than the year earlier. Nine states fell into both categories, reporting back-to-back years of waning revenues.

Entering the fiscal year, economists projected that revenues would grow 4.4 percent. But by April, it was clear that the target was in serious jeopardy: Revenues lagged projections in 37 states, forcing most to lower their forecasts. When it was all over, revenues grew a meager 0.7 percent.

Looking ahead, aggregate revenue growth is projected at 4.3 percent for FY 2004. At first glance, this appears to be a promising indicator of a revenue upswing. But that may not be the case.

Many legislative fiscal directors report that one-time revenues continue to bolster state coffers. Moreover, tax performance estimates could be too optimistic unless the economy turns around more strongly. Some legislative experts already predict that revenue estimates will be lowered in coming months.

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WHO'S TO BLAME?

Given the strong revenue growth after 1990, did states irresponsibly spend themselves into this crisis? The evidence says no.

The most important factor affecting state finances is the national economy. When it slips...