WASHINGTON (MNI) – The following was published by the National
Governors Association and the National Association of State Budget
Officers Thursday:

BIANNUAL FISCAL SURVEY SHOW STATES LAG BEHIND NATIONAL ECONOMIC RECOVERY
NGA, NASBO Say States Face Difficult Challenges for Financial Management

WASHINGTON – Findings from the biannual report, The Fiscal Survey
of States, released by the National Governors Association (NGA) and the
National Association of State Budget Officers (NASBO) today, show fiscal
year 2010 presented the most difficult challenge for states financial
management since the Great Depression.

Although the nation’s economy shows signs of improvement, state
fiscal conditions continue to deteriorate. To address falling revenues
and meet balanced budget requirements, states have dramatically reduced
spending from $687.3 billion in fiscal 2008 to $612.9 billion in fiscal
2010. The report indicates fiscal 2011will be equally challenging, in
spite of modest revenue growth. Unfortunately, states will have to make
additional spending cuts or increase taxes to close their budget gaps,
actions that will slow the economic recovery.

According to the report, in fiscal 2010, general fund expenditures
declined 6.8 percent. However, governors recommended budgets for fiscal
2011 forecast a 3.6 percent increase in general fund expenditures.

The increase in state funds in fiscal 2011 is in response to a
decline in Recovery Act funds, which are expected to decline by $55
billion, from fiscal 2010 levels, in fiscal 2011. However, even with a
3.6 percent increase in general fund spending, fiscal 2011 spending will
still be $52 billion lower than fiscal 2008, a 7.6 percent decline.

Total balances — ending balances and the amounts in budget
stabilization “rainy day” funds — are a crucial tool that states
heavily rely on during fiscal downturns and budget shortfalls. The
balances are estimated to be $38 billion, or 6.2 percent of
expenditures, in fiscal 2010, and based on fiscal 2011 recommended
budgets, $36.6 billion, or 5.8 percent of expenditures.

“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.”

States estimate that federal fund tax revenues in 2010 will be
$477.4 billion compared to $541.5 billion in fiscal 2008, a decline of
11.8 percent. Governors recommended fiscal 2011 budgets forecast
collections of $495.8 billion, an 8.4 percent decline from fiscal 2008
levels. These revenue difficulties are highlighted by the 40 states that
made mid-year budget cuts in fiscal 2010 totaling $22 billion.

The weakening of state fiscal conditions is reflected in the $296.6
billion in budget gaps faced by states between fiscal 2009 and fiscal
2012. Of the $296.6 billion, $169.3 billion has been closed by states.

“Our best estimate of the remaining state shortfalls for 2010-2012
is $127.4 billion. Because states lag behind national recovery, they
expect 2011 to be as bad as 2010, and states will not begin the path to
recovery until 2012,” said NGA Executive Director Raymond C. Scheppach.
“Spending cuts have been made across the board and governors have been
tremendous fiscal stewards. However, it will continue be an uphill climb
for states until 2013 when revenues are expected to return to 2008
levels.”

** Market News International Washington Bureau: 202-371-2121 **

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