Understanding States' Fiscal Health During and After the 2001 Recession

Publication Date: January 2008

Publisher: Tax Policy Center

Author(s): Elaine Maag; David Merriman

Research Area: Economics

Keywords: Economy; State and Local Finance; Tax Policy; State and Local Issues

Type: Report

Abstract:

Every state except Vermont operates under some sort of balanced budget requirement. That means that to serve the increased need of distressed populations during recessions, states must either increase revenue or reallocate resources dedicated to other programs. Similarly, when revenue declines, states must raise taxes or reallocate resources. This report examines the extent to which rainy day and general fund savings were a significant factor in helping states cope with fiscal stress during and after the 2001 recession, a possible explanation for the lower than expected legislated tax increases and social welfare cuts.