www.cbpp.org/cms/index.cfm?fa=view&id=3550
Taxes The cumulative effect of four consecutive years of lagging revenues has led to budget-cutting of historic proportions. An analysis of newly enacted state budgets shows that budget cuts will hit education, health care, and other state-funded services harder in the 2012 fiscal year - which started July 1, 2011 - than in any year since the recession began. Of the 47 states with newly enacted budgets, 38 or more states are making deep, identifiable cuts in K-12 education, higher education, health care, or other key areas in their budgets for fiscal year 2012. Even as states face rising numbers of children enrolled in public schools, students enrolled in universities, and seniors eligible for services, the vast majority of states (37 of 44 states for which data are available) plan to spend less on services in 2012 than they spent in 2008 - in some cases, much less. These cuts will slow the nation's economic recovery and undermine efforts to create jobs over the next year. This level of budget-cutting is unnecessary and results, in part, from state and federal actions and failures to act. To be sure, with tax collections in most states still well below pre-recession levels and lagging far behind the growing cost of maintaining services, additional cuts at some level were inevitable for 2012. But the cutbacks in services that many states are now imposing are larger than necessary. Many states enacting deep cuts have failed to utilize other important tools in their budget-balancing toolkit, such as tapping reserves or raising new revenue to replace some of the revenue lost to the recession. Some states have even added to the cutbacks by further depleting revenue through tax reductions -- an ineffective strategy for improving economic growth that likely will do more harm than good. Increased federal aid, which played an essential role in limiting the depth of cuts in services like education and health care in recent years, has almost entirely expired. Combined with states' reluctance to utilize reserves or make tax changes, the loss of this federal aid leaves states with fewer options, one of which is deeper spending cuts. Moreover, Congressional leaders have indicated that they plan to cut back funding to the states for a variety of programs and services -- a situation that would lead to further budget-balancing actions at the state level. A total of 47 states have enacted or are on the verge of enacting budgets for the 2012 fiscal year.
A review of these budgets, which in most states took effect July 1, shows that: * Nearly all states are spending less money than they spent in 2008 (after inflation), even though the cost of providing services will be higher. Most state spending goes toward education and health care, and in the 2012 budget year, there will be more children in public schools, more students enrolled in public colleges and universities, and more Medicaid enrollees in 2012 than there were in 2008. But among 44 states which have released the necessary data, 37 states will spend less in 2012, after inflation, than they did in 2008, and two -- Alaska and North Dakota -- expect to spend significantly more.
Mississippi will fail for the fourth year in a row to meet statutory spending requirements enacted to ensure adequate funding in all school districts. Arizona has frozen enrollment in part of its Medicaid program, so that an estimated 100,000 low-income people who previously would have qualified will not be able to enter the program, and another 150,000 will face more stringent rules for retaining eligibility. Washington has frozen enrollment for a state-run health plan serving approximately 40,000 low-income residents, which is expected to reduce the number of participants to 37,000 in 2012 and to 33,000 in 2013. Florida's cuts in funding for the state's universities has led to tuition hikes of 15 percent for the new school year, bringing the cumulative tuition increase since 2009 to 52 percent. Arizona cut state support for public universities by nearly one-quarter; when combined with previous cuts, this reduces per-student state funding 50 percent below pre-recession levels. California's new budget reduces funding for the state's two university systems by more than $1 billion. For one of those two systems, the University of California system, tuition for the 2011-12 school year will be 18 percent above last year's rates and over 80 percent higher than it was in the 2007-08 school year. These measures include extending expiring tax surcharges, repealing tax credits or deductions, broadening the base of some taxes, and raising rates. For example: + Connecticut's budget increased income tax rates for many filers, expanded the sales tax base to include more services, increased the sales tax rate, and instituted a rule that would make it harder for corporations to avoid income taxes, among other revenue measures. In a number of cases, the primary beneficiaries of the tax cuts or expiring tax measures were large corporations and/or high-income individuals. For example: + Michigan eliminated the state's major business tax and replaced it with a flat 6 percent corporate income tax, at a cost of more than $1 billion in 2012 alone. To partially offset the revenue lost, the state will maintain and then phase down a temporary increase in the personal income tax, reduce the state's Earned Income Tax Credit for low-income working families by 70 percent, and tax some pension income. The net result of these tax changes is a revenue loss of $535 million for fiscal year 2012. Together with other tax cuts enacted earlier this year, the total revenue loss to the state is about $200 million over the next two year budget cycle, requiring further budget cuts. Lawmakers filled $56 million of the budget shortfall by scaling back the state's Earned Income Tax Credit for 152,000 low-income working families. In Nebraska, lawmakers used reserve funds in fiscal year 2012 and fiscal year 2013 to reduce the size of the spending cuts they imposed. By protecting the state's education system and human services from even deeper cuts, this prudent use of reserves is supporting the economic recovery in the near-term, and helping to protect the state's future economic potential. The remaining five states with large reserves and budget shortfalls, however, enacted all-cuts budgets that - somewhat mystifyingly - left their reserves untouched. Among other effects, the budget cuts are slowing the pace of economic recovery. 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. State and local governments already have eliminated 577,000 jobs since August 2008, federal data show, and state budget cuts have cost an unknown but probably very large number of additional jobs in the private sector. These job losses shrink the purchasing power of workers' families, which in turn affects local businesses and slows recovery. While it is not possible to calculate directly the additional loss of jobs resulting from these newly enacted budget cuts, it appears very likely that the public sector will continue to cut jobs and also to cut funding for some private-sector jobs, negating some of the job growth that otherwise would occur in the economy as a whole. Moreover, many of the services being cut are important to states' long-term economic strength. 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. Why States Faced Shortfalls in 2012 States faced record shortfalls in fiscal year 2012 because the recession has continued to hamper...
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