Image by dj @ oxherder arts via FlickrDismal state revenue collections caused by the severe recession are setting the stage for a new round of state budget cuts as fiscal year 2011 begins in most states on July 1. The states’ cumulative budget shortfall will likely reach $140 billion in the coming year, the largest shortfall yet in a string of huge annual gaps that date back to the beginning of the recession. Closing it will have severe effects on services and jobs.
In many states, the new fiscal year will bring immediate cuts to programs and services that are facing unprecedented demand. As of July 1, 10,000 families in Arizona will lose eligibility for temporary cash assistance; Georgia will lay off as many as 284 workers who help low-income families enroll for food stamp, Medicaid and TANF benefits; and Kansas will cut off nearly 2,800 individuals with a disability from independent living services. Education, health care, and other priority areas will also face new cuts in the coming fiscal year — on top of extensive cuts that at least 45 states have enacted over the last two years.
States are raising taxes as well for 2011. Effective July 1, Kansas and New Mexico increase their sales taxes; Hawaii, New Mexico, New York, South Carolina, and Utah increase their tax on tobacco products; Washington begins taxing soda, and Oklahoma is temporarily suspending various business and energy tax credits. Other changes have already taken effect or will take effect later in fiscal year 2011. Since 2008, more than 30 states have raised taxes or tax-like fees.
Separate and apart from dismal revenue collections, the budget situation for states just got worse. Last week, the U.S. Senate failed to pass jobs legislation that would have extended an enhanced federal match for the Medicaid program that 30 states were counting on to balance their budgets. Without these funds, states will make even deeper spending cuts and more tax increases than previously planned.
These state actions, while necessary to meet state balanced-budget requirements, will nevertheless slow the economic recovery and raise the risk that the nation will fall back into recession as the loss of Americans’ spending power ripples through the economy. States’ actions to close their $140 billion gap without more federal aid could cost the economy up to 900,000 public- and private-sector jobs.
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