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Almost half of US states face budget cuts: Report

Sunday, 10 May 2015 4:11 AM [ Last Update: Sunday, 10 May 2015 4:11 AM ]

At least 22 states are expected to face shortfalls for the coming fiscal year, a threat which makes them unable to regain pre-recession status.

A new report shows that nearly half of US states are facing large budget cuts, a threat which makes them unable to regain pre-recession status.

At least 22 states are expected to face shortfalls for the coming fiscal year, meaning the possibility of plunging tax revenue and deep cuts to education, social services and other government-funded programs, showed an Associated Press analysis of statehouse finances around the US.

The economic threat is to such a degree that Standard & Poor's Ratings Service has described the trend a somewhat "early warning."

"After all, if a state is grappling with a budget deficit now, with the economic expansion approaching its sixth anniversary, what will be its condition when the next slowdown strikes?" credit analyst Gabriel Petek wrote in a recent report.

Today’s workforce is somehow different than 2008 when the recession broke out as revenue growth in some states has remained stagnant.

The stagnation is making it almost impossible to keep pace with increasing populations and rising costs for health care and education.

Other states have either experienced a reduction in oil prices or have not been able to promote growth through tax cuts the way it was anticipated.

Consequently, the US is now a nation divided between states such as California and Colorado in which there are signs of economic recovery while in others such as Illinois and Pennsylvania economic situation is exacerbating.

A majority of states have failed to regain their pre-recession status, in terms of tax revenue, financial reserves and employment rates, said Barb Rosewicz, who tracks the fiscal health of states for The Pew Charitable Trusts.

For instance, Alabama is expected to face a shortfall of $290 million after a voter-approved bailout expires at the end of the current fiscal year with anticipated cuts creating a $27 million hole in the state's court system, causing more than 600 employees to be laid off, according to Rich Hobson, administrative director for the Alabama Unified Judicial System.

"This is an insane proposition," Hobson said. "The public would suffer."

The Census Bureau has reported that there was an increase of 2.2 percent in total state government tax collections in fiscal year 2014, which in most states ended last June.

This shows the fourth consecutive overall increase, while 17 states reported declines in tax revenue from the previous fiscal year, the report said, adding Alaska had the greatest fall of $1.7 billion.

AT/AT

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