As 2011 began, the budget situation in state capitals looked more dire than just about anybody could remember. States were entering their fourth consecutive year of a fiscal crisis, with $82 billion worth of budget gaps to close. At the same time, budget aid from the federal stimulus program was drying up.
It’s turned out to be a little less horrible than expected. That’s largely because more than half of the states saw more tax revenues come in than they had anticipated, a small but significant dividend from a gradually improving economy. California discovered an additional $6 billion in tax revenues that it hadn’t counted on. In New Jersey, the windfall was more than $900 million; in Michigan it was $429 million.
The extra cash helped ease the sense of emergency. But it wasn’t enough to save most states from the budget reckoning they anticipated. Scott Pattison, executive director of the National Association of State Budget Officers, likens the situation states faced this year to a couple who gets a hefty tax refund but still can’t afford a trip to Disney World because they have too many bills to pay.
By and large, they’ve chosen spending cuts. Fresh off historic election wins in November, Republicans swept into statehouses pledging to shrink the size of government. Some 13 governors and 1,262 state legislators — a record number of both — have signed a pledge not to raise taxes. For many of them, the imperative to close budget gaps represented not a crisis but an opportunity to realign state government around a smaller mission.
The result is budgets that contract state government to a degree never before seen in some capitals. Florida’s budget spends $1 billion less than last year and $4 billion less than 2006. New York closed its $10 billion deficit with $9.3 billion in spending reductions. Arizona did away with a $1.5 billion shortfall with $1.1 billion in net spending reductions — and no new taxes.