Biggest States Face New Budget Gaps

By: - October 12, 2011 12:00 am

In the nation’s five most populous states — California, Texas, New York, Florida and Illinois — the budget news over the past few weeks has been almost all bad. All five states either face budget deficits in the current fiscal year or expected shortfalls in the future. That’s in part because of the economy’s continuing weakness and in part because their maneuvers to close previous gaps pushed problems off into the future.

The problems are most immediate in California and Illinois, because in those two states, the emerging gaps are opening in the current fiscal year. In California, as the San Francisco Chronicle reports , the state controller said this week that revenues were million below expectations for the first three months of fiscal year 2012. While state officials warned against reading too much into the numbers until a new formal revenue forecast comes out in December, it wouldn’t be surprising if California’s revenues fall short. Legislators wrote a budget with optimistic revenue projections as a way to help close a large budget gap on paper. If revenue falls billion below forecasts, the budget automatically triggers new cuts on top of the deep cuts the state already is implementing.

In Illinois, the Chicago Tribune reported  in late September that an independent research organization, the Civic Federation, found that the state faces an .3 billion deficit in the current fiscal year. That figure includes .5 billion in unpaid bills — a chronic problem  for Illinois state government.  

Meanwhile, in Florida, Texas and New York, the budget gaps fall in future fiscal years. In Florida, the Associated Press reported this week that forecasters expect revenue to fall short of expectations by somewhere between .3 billion and .7 billion over the next two years. That news represents a reversal from August, when the state expected surpluses.

In Texas, the state comptroller’s revenue forecaster gave legislators a gloomy briefing in late September, the Associated Press reported . Texas is expected to have a billion budget shortfall in the next biennium, which begins in 2013. That’s partially because the current budget underfunded Medicaid by an estimated .8 billion, meaning those payments will be pushed off into the future.

In New York, state leaders have been saying for months that they expect a  billion budget shortfall next year. This week, Governor Andrew Cuomo’s office reaffirmed that figure to the Buffalo News, even as the state comptoller predicted more job-cutting on Wall Street — a prospect that could dim the state’s fiscal outlook further. The comptroller’s latest revenue report says tax collections are growing on a year-over-year basis, but falling short of expectations.

Recent budget news hasn’t been bad everywhere. In Kansas, for example, revenue collections have exceeded expectations for six months in a row, the Kansas City Star reports . Still, as Stateline reported this spring, the five most populous states each have very different economies, political cultures and fiscal histories, making them an important cross-section of the country. Given their diversity, the fact that all five have ongoing problems is a clear sign that a strong fiscal recovery isn’t here yet for most states — whether they’re large or small.

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Josh Goodman

Josh Goodman helps lead research on fiscal management and place-based economic development programs as part of Pew’s state fiscal health project. Goodman has served as a primary author for Pew studies that examine how states should evaluate tax incentives and maintain budget discipline when implementing those incentives.