Not Out of the Woods Yet: State Fiscal Issues in FY 2013

Feb 28, 2012

Last year, our Spotlight on the States series highlighted many contentious battles to eliminate budget shortfalls in state capitals across the country. Of course, the states have been in budget-cutting mode for a few years now as the recession has led to steep drops in state revenue. However, with the economy recovering slowly and structural reforms from previous budget cycles having taken effect, projected shortfalls for FY 2013 have fallen significantly since their peak in 2010, according to a recent Center on Budget and Policy Priorities report.

The projected shortfall for FY 2013 for all states sits at $47 billion, down from $106 billion last year and the peak of $191 billion in FY 2010. Of the $47 billion total shortfall, $27 billion has already been addressed by states that are operating under a FY 2012-2013 biennial budget; in other words, these states had shortfalls for FY 2013 but closed them in the budgets that went into effect at the beginning of FY 2012. The remaining $20 billion are 2013 shortfalls that states have not yet addressed and which must be eliminated by July 1. Of the 29 states that make up this shortfall, 10 have fully eliminated their FY 2013 deficit, while the other 19 still have work to do over the next four months.

Though the states' fiscal outlook has improved significantly since 2010, CBPP does not think that the states are out of the woods yet. Budget shortfalls, as the chart above shows, tend to last much longer than the recessions that precipitate them; for example, the recession in the early 2000s technically ended in 2001, though shortfalls continued for several years afterward. Although revenue is recovering and many states have closed their shortfalls for the coming year, some states will still need to go through the painful process of again balancing their budgets.