Saturday, January 15, 2011

California Budget crisis grows

States’ Budget Woes Go Deep Below the Surface
New Brookings report shows seeds of deficit troubles were planted years ago, and problems may be larger than they appear
Washington, D.C. — As state governors and lawmakers begin work on their daunting budget challenges in the aftermath of the Great Recession, new research from the Brookings Institution’s Mountain West project and the Morrison Institute for Public Policy at Arizona State University shows this situation actually has been building for several years, and may be worse that it first appears.
The new paper by the two research organizations, Structurally Unbalanced: Cyclical and Structural Deficits in California and the Intermountain West, looks at four states—Arizona, California, Colorado, and Nevada—and shows how these problems may go far beyond shorter- term revenue declines associated with the economic slowdown. Solving states’ budget challenges may be more difficult than is generally thought as they can involve massive, entrenched imbalances than will not disappear with economic recovery.
These four states have been among the hardest-hit by the Recession, and several are contending with deep, chronic imbalances that should serve as a caution to other states.
“The budgetary condition of many states is, if anything, worse than is recognized,” said Mark Muro, a senior fellow and the policy director of the Metropolitan Policy Program at Brookings. “The gravity of states’ short-term and especially longer-term deficits underscores that this is a time when state policymakers must break their bad habits and turn to more responsible budget planning practices that looks in a balanced way at the long-term fit of revenues to spending.”

Matthew Murray, the report’s lead author and a professor of economics at the University of Tennessee notes, “The ongoing deficit problems confronting these states have compelled the states to resort to an unattractive mix of tax increases, spending cuts and one-time fixes to bring budgets into alignment.

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