Pending Budget Shortfalls

Seventeen states, including five Southern ones, are projecing that state budget revenues will fall below estimates for the current fiscal year. These shortfalls mean that state legislators will face hard choices about taxes and spending as they prepare their budgets for fiscal year 2009.

This finding comes from a new report by the Center on Budget and Policy Priorities (CBPP), a policy organization in Washington, D.C.

According to CBPP, the following Southern states have released definite estimates showing revenue shortfalls: Alabama, Florida, Kentucky, South Carolina and Virginia.

Expressed as a percentage of state general funds, projected shortfalls range from 9.2 percent in Alabama to 2.4 percent in South Carolina.

While shortfalls always are problematic for states, shortfalls that occur during economic downturns are even more severe. This is because the resulting tax increases and spending reductions often exacerbate a downturn. As CBPP has observed:

When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services and cut benefit payments to individuals ... This directly removes demand from the economy. Tax increases also remove demand from the economy by reducing the amount of money people have to spend.