Deep holes, few options: the end of stimulus money and still shaky revenues mean FY 2012 may be the worst budget year yet.

Author:Eckl, Corina
Position:Financial report
 
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Hit with the deepest recession since the Great Depression, state lawmakers in the past three years have confronted ballooning budget gaps triggered by steep revenue declines.

For the first time in a long time, however, there is some good news: FY 2011 state revenues are widely expected to exceed last year's collections. And while the return to pre-recession levels is expected to be painfully slow and uneven across states, at least revenues are on the road to recovery. So much for the good news.

Two factors overshadow the positive trend. Foremost on lawmakers' minds is the virtual end of federal stimulus money that was included in the American Recovery and Reinvestment Act of 2009. This extra money was critical to shoring up state budgets. But the money is running out soon. Today's budget lexicon features a new and widely used term--"the ARRA cliff"--that aptly describes how state policymakers view the end of the stimulus money.

Swelling spending pressure also is troubling lawmakers. Recessions always generate new spending demands because more people become eligible for safety net programs such as Medicaid and Temporary Assistance to Needy Families. But that's not all. Some programs have been cut so deeply that agencies are seeking supplemental appropriations. Indeed, within the first few months of this fiscal year, half the states reported that spending was outpacing budgeted levels. Medicaid and other health care programs were most likely to be over budget.

These two developments--the end of ARRA funds and rising expenses--represent enormous challenges for state lawmakers as they begin work on their FY 2012 budgets. Even with state revenues starting to improve, the uptick won't be enough to make up for those two factors.

Some lawmakers may look back nostalgically to FY 2011--when there was still stimulus money and revenues were improving--as the year before the next, and possibly worst, fiscal storm strikes.

Arizona Representative John Kavanagh, chair of the House Appropriations Committee, put it bluntly. "We may be a decade away from the good times."

MISERY HAS COMPANY

Deep budget problems have plagued state lawmakers for several years now, with every state except North Dakota failing into the deficit vortex. Going back to FY 2008, when the shortfalls attributable to the latest recession began appearing, states have faced, and largely closed, a cumulative budget gap of nearly $414 billion. The FY 2011 imbalance...

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