State Fiscal Crisis Insights

Most states are struggling under the weight of serious financial crises. These problems are likely to impede state efforts to support economic development in the future.

Here is the essence of a recent analysis of the state situation by Nicholas W. Jenny, a Senior Policy Analyst of the Nelson A. Rockefeller Institute of Government.

* State budget deficits are larger than they have been in at least a generation. For the most part, this was due to the revenue crash of 2001-2002, which was more severe than that of recent recessions and out of proportion to the severity of the 2001-2002 recession.

* Much of the crash was due to the same factors that created a revenue boom in the 1990s: capital gains, wages for top executives, some taxed stock options, bonuses, and other kinds of income that were related to investment. Because the economy and stock market are recovering slowly and because high levels of personal consumption cannot be sustained, it is likely that the states face a painful fiscal future for some time to come.

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