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Passing Down the Deficit: Federal Policies Contribute to the Severity of the State Fiscal Crisis

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The state fiscal crisis has been deep and prolonged. States have struggled to close deficits that have totaled approximately $190 billion over the past three years. And, as states debate and enact budgets for fiscal year 2005 (which, in most states, begins on July 1, 2004), they are facing deficits of roughly another $40 billion for that year.

Federal policies, which have reduced state revenues and imposed additional costs on states, have played a significant role in enlarging these deficits and are impeding states’ fiscal recovery. These federal policies have contributed significantly to the need for states and localities to make expenditure cuts and enact tax increases to bring their budgets into balance.