For States and Cities, the Downturn May Continue

Most economists now believe that the national recession is drawing to a close, but the impacts of the downturn will continue to be seen in budgets for state and local governments for at least the next year.

While stimulus funding has allowed state and local governments to avoid laying off teachers, prison guards, police officers and firefighters, revenues are expected to remain depressed, even as the national economy improves. The depressed value of housing will continue to mean lower revenue from sales taxes and property taxes. Continued high unemployment will mean reduced income-tax receipts, higher expenditures for unemployment claims and more demand for public assistance. Federal stimulus aid is declining, and many cities and states have already used up their emergency reserves.

The Council of State Governments projects that for the next two fiscal years, the states face a combined budget shortfall of $350 billion.