State budgets and finances

The National Association of State Budget Officers reports on the growing concern for state budgets. (hat tip MG)

Spending Remains Lower than Pre-Recession Levels State general fund spending is forecast to rise 5.3 percent in fiscal 2011 as 35 states enacted a fiscal 2011 budget with general fund spending levels above those of fiscal 2010. However, declines of 7.3 percent and 3.8 percent in state general fund spending in fiscal 2010 and fiscal 2009 respectively mean that state general fund spending remains nearly $42 billion, or 6.2 percent below its fiscal 2008 level. The fiscal 2010 general fund spending decline of 7.3 percent is the largest decline in state spending in the history of this report. See chart below.



Rainy day funds a quite low:

Additionally, in fiscal 2012 a significant amount of state funding made available by the American Recovery and Reinvestment Act of 2009 will no longer be available. The end of this support will result in a continuation of extremely tight fiscal conditions for states and could lead to further state spending cuts.

James Pethokoukis with a hat tip to Naked Capitalism suggests this thought:

Congressional Republicans appear to be quietly but methodically executing a plan that would a) avoid a federal bailout of spendthrift states and b) cripple public employee unions by pushing cash-strapped states such as California and Illinois to declare bankruptcy. This may be the biggest political battle in Washington, my Capitol Hill sources tell me, of 2011.

That’s why the most intriguing aspect of President Barack Obama’s tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program. BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31. And my Reuters colleagues report that a GOP congressional aide said Republicans “have a very firm line on BABS — we are not going to allow them to be included.”

In short, the lack of a BAB program would make it harder for states to borrow to cover a $140 billion budgetary shortfall next year, as estimated by the Center for Budget and Policy Priorities.

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