State Budgets Under Pressure as Federal Support Dwindles
As the historic federal economic stimulus package comes to an end, state governments across the US are facing mounting budget pressures. With the federal government having injected over $800 billion to help states navigate the pandemic, many are now struggling to make ends meet.
Tax Cuts and Increased Employee Pay
According to Justin Theal, a senior officer at The Pew Charitable Trusts’ Fiscal 50 project, “Virtually every state made a tax cut. Virtually every state also increased employee pay for public employees.” While this may have provided short-term relief, it has also reduced fiscal flexibility across the states.
Masking Long-Simmering Fiscal Issues
The federal support, combined with a strong US economy, has temporarily boosted state finances and concealed many underlying fiscal problems. However, a closer look reveals that as many as 27 states are unable to finance their existing liabilities, including underfunded pensions owed to former public employees.
The Most Indebted States
According to Truth in Accounting, the top five most indebted states are Connecticut, New Jersey, Illinois, Massachusetts, and California. Research fellow Oliver Giesecke at Stanford University’s Hoover Institution notes that “about $70 out of a $1,000 in allocated [federal] aid ended up in pension contributions.”
Emerging Risks
Looking ahead, state budgets will face additional challenges, including an aging population, deferred maintenance on infrastructure, and more extreme weather events. These emerging risks threaten to further strain state finances and undermine their ability to provide essential services.
A Call to Action
As federal support dwindles, state governments must take proactive steps to address their fiscal challenges. By prioritizing sustainable budgeting practices, investing in critical infrastructure, and addressing long-simmering liabilities, states can ensure a more stable financial future.
Leave a Reply