This is an excerpt from the full report.
The Great Recession and its lingering aftermath has damaged state budgets to an extent unseen for decades, severely challenging states’ capacity to support critical social safety net programs. Fiscal year 2012 will mark the fourth consecutive year that states have confronted significant shortfall between revenues and expenditures. Over this period, states have confronted – and largely solved – a cumulative $510.5 billion in budget gaps. While the economy and the fiscal picture appear to be slowly improving, states continue to confront serious challenges.
States have adopted extraordinary measures to deal with their fiscal shortfalls. These different approaches bear significant consequences for the well-being of our nation’s low-income children. Some states have targeted damaging cuts to vital social safety net programs, such as Medicaid, state child health insurance programs, subsidized child care, and pre-school programs. Yet other states with equal or greater fiscal shortfalls have found ways to balance their budgets without jeopardizing the safety net. Among other initiatives, these states have tapped new sources of revenue and found savings in both safety net and other programs that are less damaging to the well-being of America’s poor families.
The fiscal stresses of the Great Recession – the longest and deepest economic downturn in the United States since the Great Depression – are expected to persist for years to come in many states. Even as the recession officially ended in June 2009, low economic growth and persistently high unemployment have kept state revenues below their pre-recession level. Furthermore, vital federal aid delivered to states under the American Recovery and Reinvestment Act of 2009 – notably increased federal support for state Medicaid programs – is expiring.
This policy report offers a summary of the various approaches states are taking or propose taking to balance their budgets. We highlight revenue- and spending-side approaches that are protective of low-income families and endeavor to identify some best practices that other states might adopt. Finally, we seek to draw some lessons in fiscal management that may help states better weather future downturns without putting their most vulnerable populations at risk.