State Budget Shortfalls

The Center on Budget and Policy Priorities (CBPP) reports that 47 states will probably face budget shortfalls in 2009 and 2010. The article contains a listing of all the states and their projected shortfalls. California’s budget gap is projected at over $13B this year and going to $25B in 2010.

Included in the recently enacted “American Recovery and Reinvestment Act”, the Federal Government will provide $135 – $140B in aid which will close about 40% of the total gap in state budgets. Bloomberg.com calculates that almost $13T has been pledged by the federal government to the financial industry.

Moody’s, the credit ratings firm, has recently issued a negative outlook on the creditworthiness of every local government in the U.S.

The CBPP article notes that “the vast majority of states cannot run a deficit or borrow to cover their operating expenditures. As a result, states have three primary actions they can take during a fiscal crisis: they can draw down available reserves, they can cut expenditures, or they can raise taxes.”

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