States Struggling with Revenue Shortfalls.

During the 1990s, many state governments used their budget surpluses to fund new programs. The real cumulative growth from 1990 to 1998 in state spending was 30 percent, or $630 more per person. Now the stagnant economy has caught up with the states, and the revenue growth enjoyed over recent budget seasons has evaporated. Revenues in FY 2001 grew by only 4.5 percent in nominal terms, half that of FY 2000 and the lowest since 1993. To deal with the shortfalls, states are drawing on their reserves, revising budgets in mid-year, delaying capital projects, issuing more debt, and even raising taxes. The...