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Issues & Research » Budget & Tax » State Budget and Tax Update
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State Budget and Tax Update: July 2009
State Budget Update: July 2009
2009 will mark one of the most difficult years in history for state budgets. The fiscal challenges are enormous, widespread and, unfortunately, far from over.
Lawmakers in virtually every state scrambled to keep their fiscal year (FY) 2009 budgets balanced while at the same time struggling to enact new ones for FY 2010. Hemorrhaging revenues drove the massive difficulties they faced. No matter how pessimistic revenue forecasts were, actual collections seemed to come in lower. This happened over and over and over again. Ultimately, states were not just faced with lower revenue growth rates, they confronted year-over-year declines in actual collections.
The worsening revenue situation produced gaping budget holes. Lawmakers closed a cumulative shortfall that reached $113.2 billion for FY 2009. But as bad as that situation was, the circumstances for FY 2010 already are worse. As lawmakers assembled their FY 2010 budgets, they faced a staggering gap of more than $142.6 billion. That is the total shortfall states had to close as they enacted their new budgets. It does not include any new gaps that may open after the fiscal year begins.
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State Tax Update: July 2009
The economic recession has created serious revenue shortfalls and prompted numerous state legislatures to increase taxes and fees to shore up budgets during 2009 legislative sessions.
The actions taken by 36 reporting states to date have resulted in a net tax increase of $24 billion that will help offset $142 billion in budget gaps for fiscal year 2010. The tax increases represent 3 percent of total state tax collections. Sixteen states have increased taxes by more than 1 percent. Nineteen states made no significant tax policy changes.
Two new trends developed in the personal income tax area -- states relied heavily on the income tax to raise new revenue, which has not been the case in recent years, and states specifically asked higher-income earners to temporarily shoulder more of the burden. Top rates were increased and/or capital gains breaks were scaled back by several states.
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