AP
Nevada is among the states most stung by the downturn. Between 2006 and 2010, home values plummeted a staggering 44.5 percent.
By Michael B. Sauter, Charles B. Stockdale and Ashley C. Allen, 24/7 Wall St.
Balancing the budget is not just a federal problem, but a state one as well. The Great Recession resulted in some of the worst state revenues and budget shortages of all time. According to a report on state budgets by the Center for Budget Policy Priorities, dozens of states faced shortfalls of hundreds of millions — or even billions — of dollars.
24/7 Wall St. examined the 10 states that had budget shortfalls of 27 percent or more of their general funds for fiscal year 2011 — the states that were short the most money before they balanced their budgets. For the most part, the states with the worst budget gaps also had among the most anemic economies. Because of their budget shortfalls, all of them have been forced to make dramatic cuts to government services.
Every state but Vermont is required by its own law to balance the budget. In order to do so, state governments have to take extreme measures, instituting deep cuts that often hurt a diversity of residents. In the 2011 fiscal year, 29 states made cuts to services benefiting the disabled and elderly, 34 reduced funds for K-12 and early education, and all but six states reduced positions, benefits or wages of government employees.
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The housing crisis was one of the primary causes for many of the largest budget deficits. The housing markets in states such as Nevada, Illinois and Arizona — all of which are on the list — have been hit particularly hard. Home values in Nevada declined the largest amount in the country between 2006 and 2010. Home values in Arizona decreased the fifth-largest amount over that same period. Sick housing markets weaken the economy and lower tax bases, which hurts state revenues and in turn helps create a budget gap.
Overall, weak state economies contributed to lower revenues and rising budget shortfalls. Not surprisingly, states with slower-growing economies tended to have a larger budget gaps. And although the GDP of every state in the nation grew between 2006 and 2010, seven of the 10 states on this list fell within the 15 states with the smallest increases.
While economic slowdowns and housing problems hit most of the states with the worst budget gaps, there were some exceptions. In four of the 10 states, home values actually rose between 2006 and 2010, the worst period of the recession. Similarly, other states with budget shortfalls weathered the recession relatively well and managed to maintain fairly healthy economies. In Washington state, for example, the median income rose 5.8 percent, the 16th-most in the country, while GDP increased 13.4 percent, the 12th most.
These are the states that cannot pay their bills.
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1. Nevada
2011 budget shortfall as a percentage of general fund: 54.5 2011 budget shortfall: $1.8 billion 2012 projected budget shortfall: 37.4 percent (the largest) GDP change (2006 - 2010): +1.2 percent (smallest increase) Median home value change (2006 - 2010): -44.5 percent (the largest decline)No state has suffered during the recession more than Nevada. Between 2006 and 2010, home values plummeted a staggering 44.5 percent, the poverty rate increased 26 percent, median income dropped 3.8 percent and GDP increased only 1.2 percent. Each was the worst in the country for that category. Last year, Nevada’s budget gap was $1.8 billion, the equivalent of 54.5 percent of available funds. This was the third year in a row the state has had one of the worst shortfalls in the country, and that trend appears ready to continue through at least 2013. In order to balance its budget last year, Nevada was forced to raise taxes significantly, cut dental and vision services from Medicaid coverage for adults, reduce financial aid funding, and cut state employee salaries.
2. Illinois
2011 budget shortfall as a percentage of general fund: 40.2 2011 budget shortfall: $13.5 billion 2012 projected budget shortfall: 16.0 percent (11th largest) GDP change (2006 - 2010): +8.2 percent (13th smallest increase) Median home value change (2006 - 2010): -4.2 percent (11th largest decline)Illinois has consistently had among the largest budget shortfalls in the country since 2009. It also was hit extremely hard by the recession. Between 2006 and 2010, home values decreased by 4.2 percent. GDP grew a relatively small 8.2 percent. Median household income increased less than 2 percent. The state made cuts in its budget for community mental health services for both children and adults, and it cut its school education funding by 4 percent, or $311 million. Governor Pat Quinn has announced also that he will lay off thousands of state employees.
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3. Arizona
2011 budget shortfall as a percentage of general fund: 39.0 2011 budget shortfall: $3.3 billion 2012 projected budget shortfall: 17.0 percent (10th largest) GDP change (2006 - 2010): +2.7 percent (4th smallest increase) Median home value change (2006 - 2010): -28.6 percent (4th largest decline)Like its neighbor Nevada, Arizona was hit particularly hard by the subprime mortgage crisis. Between 2006 and 2010, median home values plunged 28.6 percent in the state, the fourth worst price drop in the country. GDP, poverty and income levels have either stagnated or become significantly worse during this period. Since 2009, the state has had among the worst budget gaps in the country, a combined total of $12.1 billion for the three years. To balance its budget, Arizona has made dramatic budget cuts, including revoking Medicaid eligibility of more than 1 million low-income residents and cutting preschool for more than 4,000 children.
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