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States' Heavy Reliance on Spending Cuts and One-Time Measures to Close Their Budget Gaps Leaves Programs at Risk

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Abstract:

Between fiscal year 2002 and fiscal year 2004, states faced budget gaps that totaled close to $200 billion. States are required by law or tradition to balance their budgets. As a result, states cut spending, drew down their reserves, raised taxes and used one-time measures such as borrowing, federal fiscal relief and payment date shifts to close those gaps.

This analysis finds that states relied heavily on spending cuts and short-term measures to close budget gaps. Revenue increases were a relatively small part of the solutions adopted. On average, states were three times more likely to rely on spending cuts to close deficits than on revenue increases.