State revenues to stabilize in 2010 but obstacles remain, report indicates

INPUT believes that state and local government revenue forecasts will begin to catch up with the realities of the economy in 2010. But just because statehouses across the country will be able to more accurately project future revenues, does not mean those numbers will be encouraging. And 2010 will be a big election year for many states, something that will surely impact the way they conduct business with the private sector across an array of programs, adding uncertainty to revenue stability, the report said.

According to the latest numbers from the National Association of State Budget Officers (NASBO), thirty-six states project budget shortfalls in 2010. And over the next two budget cycles, the report estimates that states’ combined budget gap could be as high as $134 billion. To combat these numbers, states have enacted tax and fee changes resulting in an anticipated $23.9 billion in additional revenue. “States also enacted revenue measures that will result in additional revenues of $7.7 billion for fiscal year 2010,” the NGA / NASBO report said.

Due to this slow regain in revenue stability, INPUT predicts that state and local officials will begin to understand future budget projects with greater accuracy and confidence. But due to political instabilities and a scheduled decline in federal financial support for the housing market, economic recovery is anything but certain.

Thirty-seven governors’ seats are up for election in 2010, the largest election in the current four-year cycle. Additionally, this political puzzle is complicated by a bureaucratic hemorrhaging that has seen 85 percent of state governments instituting hiring freezes, eliminating vacant positions (75 percent), layoffs (65 percent) or furloughs (60 percent).

A bright spot, the report finds, is that the bulk of President Obama’s stimulus money for state and localities will be spent in 2010, including:

• $2.3 billion of the $5.7 billion total in IT spending will be dolled out in 2010
• $646 billion in grants-in-aid as part of the FY 2011 federal budget
• $150 billion in Build America Bonds for state and local infrastructure
• Up to $100 billion in possible “jobs” stimulus as part of the FY 2011 federal budget

To learn more about the INPUT report, click here