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New report says Idaho isn’t alone in responding to tax revenue shortfalls

New report says Idaho isn’t alone in responding to tax revenue shortfalls

Idaho Freedom Foundation staff
June 3, 2010

A new report from the nation’s governors and budget officers shows that many states are facing similar budget dilemmas as Idaho lawmakers, including how to handle dwindling tax revenues, rising demands for services, and requirements to balance state spending.

The report released Thursday by the National Governors Association (NGA) and National Association of State Budget Officers (NASBO) showed that, on average, states have reduced their spending in the current and previous budgets, and will only increase spending slightly in the next budget.  Idaho, which lowered its tax revenue projections earlier this year, follows the national pattern.

"States are still reeling from the downturn after the unprecedented declines in year over year spending in fiscal 2009 and 2010," said NASBO Executive Director Scott D. Pattison.  "States face significant fiscal challenges going forward with the federal Recovery Act funds ending, revenues not expected to be returning to pre-recession levels, and higher demands for many services like health and education."

The report said many states are reaching similar spending decisions as the Idaho Legislature did this year, including making mid-year spending reductions, drawing down reserve funds, and reducing spending on public education, Medicaid, and other programs.

Idaho differed from other states by not raising taxes and fees on its citizens.  The study didn’t include user fees like those imposed at state parks or courts.  Nationwide, state legislatures approved raising taxes and fees by a net $3.1 billion, with 18 states, including Washington, recommending net increases, while nine proposed tax decreases.  States mostly lowered sales and income taxes while raising state cigarette taxes and other taxes and fees.  Washington and New York lawmakers added a tax on soft drinks, while other states raised taxes on physician services and motor vehicles.

More than 20 other states joined Idaho state agencies in using furloughs and layoffs to meet budget shortfalls.  Twelve states opted to reduce the salaries of state employees, while five opted to privatize some state functions.  Nine states tried to raise revenues by expanding gambling or the state lottery.

The report said that because state tax revenues tend to lag behind national revenues during an economic recovery, Idaho and its fellow states could remain sluggish through early 2013.  Idaho’s general fund tax revenues peaked during fiscal year 2008 at $2.9 billion, and are at $2.28 billion for the current budget, fiscal year 2010.

NGA Executive Director Raymond Scheppach said earlier this year that he thinks state governments could be in the middle of a “lost decade” and that by the time state revenues return to their peak, new federal Medicaid requirements that were part of new health care laws approved by Congress will kick in.  “The bottom line is that states will continue to struggle over the rest of this decade because of the combination of the length and depth of this economic downturn, the projected slow recovery, and the additional Medicaid responsibilities,” Scheppach said.  “The fact is that the biggest impact on states is the one to two years after the recession is over.  With states having entered the recession in 2008, revenue shortfalls persisting into 2014, and a need to backfill deferred investments into core state functions, it will take states nearly a decade to fully emerge from the current recession.”

Not everyone shares Sheppach’s view on states’ Medicaid burden under new health care laws.  A study by the Kaiser Family Foundation found that, through 2020, the federal government will cover 96 percent of the cost of expanding Medicaid, and that states will need to pay $20 million to expand health care to people living above the federal poverty line.

Read more about the new report at the NGA website.

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