Balancing the budget isn't just a federal problem -- it's a state one as well. The Great Recession resulted in some of the lowest state revenues in years, and some of the biggest budget shortfalls of all time. According to a report on state budgets by the Center for Budget Policy Priorities, dozens of states faced shortages of hundreds of millions -- or even billions -- of dollars.
24/7 Wall St. examined the 10 states that had budget shortfalls of 27% or more of their general funds for fiscal year 2011 -- the states that were short the most money before they balanced their budgets. For the most part, those with the worst budget gaps also had among the most anemic economies. And because of their budget problems, all of them have been forced to make dramatic cuts to government services.
Every state but Vermont is required by its own laws to balance its budget each year. In order to do so recently, governments have had to take extreme measures, instituting deep cuts that hurt wide array of their residents. In the 2011 fiscal year, 29 states made cuts to services for the disabled and elderly, 34 reduced funds for K-12 and early education, and all but six states reduced positions, benefits or wages of government employees.
The housing crisis was one of the primary causes for many of the largest budget deficits. Sick housing markets weaken the economy and lower tax bases, which hurts state revenues. So it's no surprise that states such as Nevada, Illinois and Arizona -- which saw some of the worst real estate declines -- made the list. Home values in Nevada led the nation in declines between 2006 and 2010. Home values in Arizona decreased the fifth-largest amount over that same period.
More generally, weak state economies contributed to falling revenues and rising budget shortfalls: States with slower-growing economies tended to have a larger budget gaps. And although the GDP of every state in the nation grew between 2006 and 2010, seven of the 10 states on this list were among the 15 with the smallest increases.
But those generalizations don't tell the whole story: In four of the 10 states, home values actually rose between 2006 and 2010. Similarly, other states with budget shortfalls weathered the recession relatively well and managed to maintain fairly healthy economies. In Washington state, for example, the median income rose 5.8%, the 16th-most in the country, while GDP increased 13.4%, the 12th most.
Ten States That Cannot Pay Their Bills
The 10 States With the Most Trouble Paying Their Bills
Article by Michael B. Sauter, Charles B. Stockdale, Ashley C. Allen of 24/7 Wall St.
2011 budget shortfall as a % of general fund: 27.2% 2011 budget shortfall: $365 million 2012 projected budget shortfall: 18.4% (8th largest) GDP change (2006 – 2010): +7.5% (11th smallest increase) Median home value change (2006 – 2010): -4% (12th largest decline)
New Hampshire is often considered to have weathered the recession better than most states. It has one of the strongest economies in the country in many respects. Its poverty rate is a modest 8.1% — the lowest among the 50 states. However, the state did not make it through the recession completely unscathed. Home values dropped 4% from 2006 to 2010, the 12th largest amount, and GDP increased only a small amount compared to other states. New Hampshire’s budget shortfall was the 10th largest in percentage terms. To fight the deficit, the state has enacted a hiring freeze and cut a number of services. It reduced the number of state hospital beds by 15, a change that will result in 500 fewer patients treated per year. It has also cut funds to 10 mental health centers for children’s support services. Despite all these measures, New Hampshire’s projected 2012 budget shortfall is the eighth largest.
2011 budget shortfall as a % of general fund: 28.8% 2011 budget shortfall: $5.1 billion 2012 projected budget shortfall: 14.7% (14th largest) GDP change (2006 – 2010): +12.8% (17th largest increase) Median home value change (2006 – 2010): -3.4% (13th largest decline)
In the past two years, Connecticut has had a combined budget shortfall of just under $10 billion. In 2010, the state spent 27.0% more than its available funds, and in 2011 it spent 28.8% more. Connecticut was not hit as badly as some states by the recession, but home values still dropped 3.4% between 2006 and 2010. During that same period, poverty increased the third-most in the country, from 8.3% of households to 9.7% of households. In order to account for the substantial budget gaps, Connecticut cut government employee salaries, as well as funds for K-12 and higher education. The governor also made substantial budget cuts to programs aimed at preventing child abuse and providing foster care for neglected children.
2011 budget shortfall as a % of general fund: 29.6% 2011 budget shortfall: $4.6 billion 2012 projected budget shortfall: 15.3% (13th largest) GDP change (2006 – 2010): +13.4% (12th largest increase) Median home value change (2006 – 2010): +1.6% (2nd smallest increase)
Washington’s home values actually increased between 2006 and 2010, but only by 1.6% — an exceptionally small amount compared to other states. On the other hand, the state’s economy recorded a double-digit growth rate. Still, this was not enough to save the state from its budgetary shortcomings. Because of its $4.6 billion budget gap, the state cut public safety funding, assistance for the mentally and physically disabled, and education funding, among others. The state also increased premiums for a health plan that serves low-income residents.
2011 budget shortfall as a % of general fund: 30.6% 2011 budget shortfall: $5.8 billion 2012 projected budget shortfall: 12.1% (21st largest) GDP change (2006-2010): +12.1% (21st largest increase) Median home value change (2006-2010): +12.4% (15th largest increase)
Compared to most states, North Carolina actually fared relatively well during the worst years of the recession. GDP and home values increased substantially, while median income and poverty rates did not worsen by much. Despite this, the state has had high budget gaps for each of the past three years. In 2011, the state had a budget shortfall of $5.8 billion, or 30.6% of available resources. In order to balance the budget, the state was forced to make across-the-board cuts to public health, the elderly and disabled, K-12 education, higher education and the state workforce. The state slashed 21% of funding to a program that pays for nurses and social workers in low-income schools. Because of the cut, 20 schools were left without a nurse or social worker.
2011 budget shortfall as a % of general fund: 31.3% 2011 budget shortfall: $338 million 2012 projected budget shortfall: 14.3% (15th largest) GDP change (2006 – 2010): +8.3% (tied for 14th smallest increase) Median home value change (2006 – 2010): +12.4% (18th largest increase)
Vermont was hit extremely hard by the recession. The percentage of people living below the poverty line increased by 13.6% between 2006 and 2010 — one of the largest increases in the country. And while the state’s GDP increased over that period, it only grew a small amount compared to other states. One way Vermont has attempted to bridge its budget gap is by closing the state court system for half a day each week. Other measures include a hiring freeze and cuts to higher education operating funding and financial aid.
2011 budget shortfall as a % of general fund: 34.7% 2011 budget shortfall: $940 million 2012 projected budget shortfall: 13.8% (16th largest) GDP change (2006 – 2010): +8.3% (tied for 14th smallest increase) Median home value change (2006 – 2010): +5% (26th largest increase)
Maine is another state that conflicts with the assumption that states with severe budget shortfalls were the only ones hit hard by the recession. Median home value actually increased 5% in the state, and the poverty rate dropped the third-most in the country. Nevertheless, Maine faced a $940 million budget shortfall in 2011, worth 34.7% of available funds for that year. In 2011, the state made cuts in every major funding category and to CHIP and Medicaid. It has also instituted hiring freezes for state employees. For the 2012 fiscal year, Maine is again projected to have a budget shortfall, this time of $422 million. In light of this, the state cut temporary cash assistance and food stamps to legal immigrants who have been in the country less than five years.
2011 budget shortfall as a % of general fund: 38.2% 2011 budget shortfall: $10.7 billion 2012 projected budget shortfall: 36.0% (2nd largest) GDP change (2006 – 2010): +7.1% (10th smallest increase) Median home value change (2006 – 2010): -7.5% (9th largest decline)
Homevalues in New Jersey dropped 7.5% between 2006 and 2010, the ninth largest decline. For the third year in a row, the state has initiated deep cuts to close its budget gap. The state made the eligibility requirements for its public health insurance program more strict. As a result, approximately 50,700 low-income adults will lose access to health care coverage, according to CBPP. The state cut funding to after-school programs, which will affect 11,000 students and cause 1,100 staff workers to lose their jobs. That is on top of already cutting 2,000 state positions. Despite all of these changes, the state’s projected budget shortfall for 2012 is only 2.2 percentage points lower than this year’s and the second-largest among the states.
2011 budget shortfall as a % of general fund: 39.0% 2011 budget shortfall: $3.3 billion 2012 projected budget shortfall: 17.0% (10th largest) GDP change (2006 – 2010): +2.7% (4th smallest increase) Median home value change (2006 – 2010): -28.6% (4th largest decline)
Like its neighbor Nevada, Arizona was hit particularly hard by the subprimemortgage crisis. Between 2006 and 2010, median home values plunged 28.6% in the state, the fourth worst price drop in the country. GDP, poverty and income levels have either stagnated or become significantly worse during this period. Since 2009, the state has had among the worst budget gaps in the country, a combined total of $12.1 billion for the three years. To balance its budget, Arizona has made dramatic budget cuts, including revoking Medicaid eligibility of more than 1 million low-income residents and cutting preschool for more than 4,000 children.
2011 budget shortfall as a % of general fund: 40.2% 2011 budget shortfall: $13.5 billion 2012 projected budget shortfall: 16.0% (11th largest) GDP change (2006 – 2010): +8.2% (13th smallest increase) Median home value change (2006 – 2010): -4.2% (11th largest decline)
Illinois has consistently had among the largest budget shortfalls in the country since 2009. It also was hit extremely hard by the recession. Between 2006 and 2010, home values decreased by 4.2%. GDP grew a relatively small 8.2%. Median household income increased less than 2%. The state made cuts in its budget for community mental health services for both children and adults, and it cut its school education funding by 4%, or $311 million. Governor Pat Quinn has announced also that he will lay off thousands of state employees.
2011 budget shortfall as a % of general fund: 54.5% 2011 budget shortfall: $1.8 billion 2012 projected budget shortfall: 37.4% (the largest) GDP change (2006 – 2010): +1.2% (smallest increase) Median home value change (2006 – 2010): -44.5% (the largest decline)
No state has suffered during the recession more than the state of Nevada. Between 2006 and 2010, home values plummeted a staggering 44.5%, the poverty rate increased 26%, median income dropped 3.8% and GDP increased only 1.2%. Each was the worst in the country for that category. Last year, Nevada’s budget gap was $1.8 billion, the equivalent of 54.5% of available funds. This was the third year in a row the state has had one of the worst shortfalls in the country, and that trend appears ready to continue through at least 2013. In order to balance its budget last year, Nevada was forced to raise taxes significantly, cut dental and vision services from Medicaid coverage for adults and reduce financial aid funding and state employee salaries.
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