New Fiscal Year Brings Further Budget Cuts to Most States, Slowing Economic Recovery
States have enacted deep cuts in education, health care, and other important public services in their budgets for fiscal year 2012 (which begins July 1 in most states). It is the fourth year in a row of budget-cutting for states, and the 2012 cuts are deeper than in past years. Of the 32 states that have enacted budgets, as least 24 are imposing significant cuts. These cuts will delay the nation’s economic recovery and undermine efforts to create jobs.States are facing these problems because of conservative Republican economic policies that are deeply un-American. Republicans could have prevented or made the recession much less severe if they had enforced those terrible regulations they're always complaining about. It would also have helped if they would have paid for the wars in Iraq and Afghanistan instead of charging them to future generations. Now rather than raise revenue conservative Republicans are taking Medical care from the elderly and poor while cutting taxes once again for wealthy individuals and corporations. If tax cuts were a magic dust that created jobs we would not have the high unemployment rate we have now. It appears that conservative Republicans are maliciously sabotaging the economy for petty and spiteful political gain. There is nothing patriotic about that.
These enacted budget cuts will cause hundreds of thousands of Arizona families to lose health insurance, force the shortening of the school year for 86,000 preschoolers in Georgia, sharply increase university tuition in North Carolina and Washington, and cost jobless disabled individuals in Michigan one-quarter of their cash assistance, among a range of other impacts.
These and other budget cuts for 2012 are resulting principally from the lingering effects of the long and deep recession, which are causing tax collections in most states to remain well below pre-recession levels (despite modest recent improvements) and to lag far behind the growing cost of maintaining existing services. The cutbacks in services that many states enacted are not entirely necessary, because they have been exacerbated by federal and state actions and failures to act. The federal government, for example has provided $165 billion in emergency health and education funding to states, primarily through the 2009 Recovery Act, but those dollars are mostly ending June 30. For their part, many of the states that will implement very deep cuts in 2012 have failed to raise new revenue to replace some of the revenue lost to the recession. Some states even added to the cutbacks needed by reducing corporate taxes or other taxes — an ineffective strategy for improving economic growth that likely will do more harm than good.
Cutting state services not only harms vulnerable residents but also slows the economy’s recovery from recession by reducing overall economic activity. When states cut spending, they lay off employees, cancel contracts with vendors, reduce payments to businesses and nonprofits that provide services, and cut benefit payments to individuals. All of these steps remove demand from the economy.
Moreover, many of the services being cut are important to states’ long-term economic strength. For instance, research shows that in order to prosper, businesses require a well-educated, healthy workforce. Many of the state budget cuts described here will weaken that workforce in the future by diminishing the quality of elementary and high schools, making college less affordable, and reducing residents’ access to health care. In the long term, the savings from today’s cuts may cost states much more in diminished economic growth.
Majority of States Enacting Major Cuts in Important Public Services
As of June 27, a total of 32 states have enacted their budget for the coming 2012 fiscal year. Three-fourths of these states — at least 24 of 32 — are making major cuts to important public services. Five of the remaining six states did not have a shortfall that they needed to close for fiscal year 2012; the sixth state — Hawaii — raised substantial revenues to balance its budget and avoid crippling cuts.
...Because states still face these very large budget gaps, their best strategy will remain a balanced combination of modest spending cuts, new revenue measures to strengthen the revenue recovery, and (in a few states) utilization of remaining reserves. Instead, most states that have enacted budgets so far relied almost entirely on cuts to close their shortfalls — making the cuts they imposed deeper than necessary and impeding the economic recovery.
Only a few states raised revenue to help resolve their fiscal year 2012 budget shortfalls. Hawaii, for example, raised over $600 million in new tax revenue over the biennium by limiting tax exemptions for businesses and by eliminating the standard deduction and capping itemized deductions for higher-income individuals, among other actions. Illinois lawmakers enacted personal and corporate income tax increases to help address the state’s budget shortfalls for the current and upcoming year.
A few states made their problems worse by cutting taxes. Georgia, for example, enacted nearly $100 million in tax cuts, including $46 million to allow top income earners to claim unlimited itemized deductions on their income taxes. And Arizona reduced the corporate income tax rate and commercial property taxes, costing the state $38 million in fiscal year 2012, or 4 percent of the state’s 2012 budget shortfall.[3]
The cuts states have imposed since the recession began have impeded the nation’s economic recovery and cost hundreds of thousands of private-sector and public-sector jobs. State and local governments have cut 535,000 jobs in education and other areas since August 2008 and are forecast to continue to cut tens of thousands of additional positions each month. In addition, deep cuts in funding for services create a cycle of job loss in the private sector. When schools, universities, health agencies, police departments, and other units of government cut their budgets, they cancel contracts with private vendors and eliminate or lower payments to businesses and nonprofit organizations that provide direct services. As a result, the companies and organizations doing business with the state have less money to spend on salaries and supplies and may reduce the salaries of their workers or lay them off. When workers receive lower pay or lose their job, they consume less, and the ripple effect continues throughout the state’s economy, costing even more jobs.
