At statehouses around the country, the Great Recession is far from over: It could take years for many states to climb out of the hole and return to pre-downturn spending levels. An Associated Press examination of 50 balance sheets shows state budgets and bank accounts still ravaged by a drop in tax revenue. Many states are also facing enormous long-term pension and health-care obligations. At the same time, the payout of stimulus money from Washington that helped many states in their darkest hours has come to an end. While some states saw a modest jump in tax collections this spring, the combined revenue projected by the 50 states in the coming fiscal year—$734 billion—is still down by about $34 billion, or 5%, from the 2007-08 fiscal year, when the recession began. Some states are in far worse shape than others. New Jersey, Nevada, Oregon, Illinois and Louisiana reported deficits that are more than 20% of the state general fund. Even as many states begin a gradual recovery, analysts expect it will be several years before they are spending again at the levels seen before the recession.
In some cases, states have taken steps that actually made their fiscal situation worse. In Louisiana, for example, the drop in the state’s general fund can be tied in part to hefty income tax breaks passed by lawmakers in 2007 and 2008 for middle- and upper-income earners. The permanent tax cuts reduced by an estimated $580 million the revenue the state would otherwise have received this year and similar amounts in future years.
