Chicago fed: structural factors playing larger role in government fiscal stress.

• Position: News & Numbers - Brief Article

Structural factors in both revenues and expenditures have played a larger role in the recent budget problems experienced by states in the upper Midwest than in the past, according to a recent report by the Federal Reserve Bank of Chicago. To bridge the structural gaps between revenues and expenditures, states must abandon short-term fixes and look instead to the tax policy and expenditure choices they have embraced.

The report examines fiscal conditions in the five states that comprise the Seventh Federal Reserve District--Illinois, Indiana, Iowa, Michigan, and Wisconsin. While these states have pursued different fiscal policies and relied on different tax structures to fund themselves over the years, all are now facing significant budget shortfalls.

Many of the Seventh District state and local governments have been under pressure in recent years to deal with significant deterioration in financial condition. Much of the imbalance can be traced to the expansion of spending programs in the 1980s and to slow revenue growth during the most...