Recession’s Lingering Impact and the New Abnormal

Over the past decade, the fifty states have taken a real hammering with cumulative budget deficits of nearly $1 trillion. Unlike the federal government, which can print money or borrow from China, every state except Vermont has some sort of balanced-budget law. So the shortfalls for fiscal years 2009 through 2012 — which totaled more than $540 billion combined — have already been closed through a combination of spending cuts, withdrawals from reserves, revenue increases, and use of one-time federal stimulus dollars. (Source: Center on Budget and Policy Priorities, June 2012) The substantial shortfalls projected for fiscal year 2013 have also been largely closed. Thirty-one states projected budget gaps totaling $55 billion for the year beginning July 1, 2012. These shortfalls were all the more daunting because states’ options for addressing them were fewer and more difficult than in recent years. Remember, these deficits are cumulative, so the cuts needed to balance 2013 budgets are built on top of the previous decade’s cumulative cuts. The smaller base means the cuts are bigger in relative terms, and the suffering proportionately greater.

From the CPBB report,

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State revenues remained 5.5 percent below pre-recession levels, and are not growing fast enough to recover fully soon…. Even though the revenue outlook is trending upward, states have addressed large budget shortfalls by historical standards as they considered budgets for 2013. The vast majority of these shortfalls have been closed through spending cuts and other measure sin order to meet balanced-budget requirements…. To the extent these shortfalls are being closed with spending cuts, they are occurring on top of past years’ deep cuts in critical public services like education, health care, and human services.
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We are now half way through fiscal year 2013 and are beginning to hear of smaller deficits, increased tax receipts, and a brighter outlook for the 2014 fiscal year. While this would indeed be a positive trend, let’s just remember that even a smaller deficit next year is still a deficit on top of a historic run of cuts. Even a substantial surplus next year (which no one is projecting at this point) would be only the beginning of stability —and such a “new abnormal” would be a far cry from meeting the basic needs of our people. Many of our clients are struggling to identify still more ways to cut the budget; tough choices are being made every day in the sector. What have you had to cut, and what is the outlook for your organization in the coming year?