States in Worst Budget Trouble

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Arizona

Shortfall States

Is your state going broke -- and what does it mean for you? The deepening economic crisis is having disastrous impacts on state budgets and forcing even wealthy states to raise taxes and make substantial program cuts. Just this week, New York Governor David Paterson proposed $4 billion in tax and fee increases and $9 billion in program cuts, including aid to New York City and other municipalities, as he tries to close an expected $15 billion budget shortfall.

At least 43 states faced shortfalls in this year's budget and/or next year's budget, according to Washington research group Center on Budget & Policy Priorities, which recently completed a study on the shortfalls. States that have already raised taxes, dipped into reserves, and slashed programs to balance budgets now have to consider additional cuts because of lower-than-expected revenues. Thirty-seven states face such midyear fiscal 2009 gaps. And many states that have made projections for the 2010 fiscal year expect much more serious problems ahead.

The impact of the recession on this year's budgets is already as bad as the last recession in the early 2000s, according to the report. "In states facing budget gaps, the consequences are severe for the residents as well as the economy," the report reads. Budget "difficulties are leading some 25 states to reduce services to their residents, including some of their most vulnerable families."

The data in this slide show are based on information collected by the Center on Budget & Policy Priorities through Dec. 7 and show the states that have seen the biggest shortfalls in tax revenue in their fiscal 2009 budgets.

Editor's note: The "total gap" includes the shortfalls before the budget was adopted, along with any additional midyear gaps. Most of the states on the list have a fiscal year that begins on July 1. The exceptions include New York, which has a fiscal year beginning on Apr 1; Michigan and Alabama, which start their fiscal years on Oct. 1; and Texas, which starts its fiscal year on Sept. 1.

Read on to find out the 20 states with the biggest budget shortfalls.

Source: Center on Budget & Policy Priorities

Arizona

Rank: 1 (Previous Rank: 2*)
Budget gap (as a % of the total budget): 30.80%
Total gap: $3.1 billion
Gap before budget was approved: $1.9 billion
Additional midyear gap: $1.2 billion

Arizona was hit hard by the subprime crisis, and its economy has slowed sharply since mid-2006. Lawmakers, who had to make up a $2 billion budget shortfall for fiscal 2009, reduced the Medicaid rolls, put a freeze on hiring, and cut funding for community health centers and state universities.

Editor's note: Previous rank for all slides based on September 2008 data from Center on Budget & Policy Priorities that appeared in this Businessweek.com story on Oct. 3.

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California

California

Rank: 2 (Previous Rank: 1)
Budget gap (as a % of the total budget): 30.30%
Total gap: $30.6 billion
Gap before budget was approved: $22.2 billion
Additional midyear gap: $8.4 billion

The Golden State is looking a lot less golden these days as it is being forced to hold off on $3.8 billion in financing for road, prisons, school, and other projects because of the current budget shortfall. California, which has been battered by foreclosures, needs the money to pay for immediate needs, including health care and public safety. Democratic and Republican lawmakers have been unable to agree on a compromise. Governor Arnold Schwarzenegger supports new spending cuts and tax increases in addition to previously enacted cuts to the state's health insurance program for the poor and other social service programs.

Rhode Island

Rank: 3 (Previous Rank: 5)
Budget gap (as a % of the total budget): 24.50%
Total gap: $802 million
Gap before budget was approved: $430 million
Additional midyear gap: $372 million

Rhode Island's economy has been weakened by its housing market, one of the worst in the nation. Lawmakers closed a $430 million shortfall in their budget with cuts to the public college system and aid for municipalities, as well as tighter limits on welfare benefits. But it hasn't yet filled the midyear gap.

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Florida

Florida

Rank: 4 (Previous Rank: 3)
Budget gap (as a % of the total budget): 21.50%
Total gap: $5.5 billion
Gap before budget was approved: $3.4 billion
Additional midyear gap: $2.1 billion

Florida's housing slump is one of the worst in the nation and only appears to be getting worse. The $66 billion Florida budget for the coming year is about $6 billion less than the one approved the previous year. It includes a $332 million reduction in public school spending and cuts to state hospitals, nursing homes, and various social programs. The Florida legislature next month will convene to decide how to plug the midyear gap.

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Nevada

Nevada

Rank: 5 (Previous Rank: 4)
Budget gap (as a % of the total budget): 19.60%
Total gap: $1.4 billion
Gap before budget was approved: $898 million
Additional midyear gap: $536 million

Nevada has the worst foreclosure rate in the nation, and its economy has slowed dramatically this year. The governor capped the state's children's health program and increased children's health-care premiums, and cut funding for K-12 education, higher education, and welfare. In a special session this month, lawmakers ratified bills to plug the shortfall by cutting state programs, including funding for a major road project and authorizing a line of credit from a $160 million fund for local governments.

Alabama

Rank: 6 (Previous Rank: 7)
Budget gap (as a % of the total budget): 15.00%
Total gap: $1.2 billion
Gap before budget was approved: $784 million
Additional midyear gap: $458 million

Alabama closed some corporate tax loopholes and made cuts to colleges and universities.

Illinois

Rank: 7 (Previous Rank: 14)
Budget gap (as a % of the total budget): 13.40%
Total gap: $3.8 billion
Gap before budget was approved: $1.8 billion
Additional midyear gap: $2.0 billion

lllinois cut funding for child welfare, mental health, youth services, and other programs. It laid off hundreds of workers and proposed closing many parks and historic sites. President-elect Barack Obama, send help!

Georgia

Rank: 8 (No change)
Budget gap (as a % of the total budget): 12.90%
Total gap: $2.7 billion
Gap before budget was approved: $245 million
Additional midyear gap: $2.5 billion

The state's economy has been hurt by a slowing housing market. The governor asked state agencies to cut 4% to make up an expected shortfall in the $21 billion budget for the coming fiscal year.

Virginia

Rank: 9 (No change)
Budget gap (as a % of the total budget): 12.80%
Total gap: $2.2 billion
Gap before budget was approved: $1.2 billion
Additional midyear gap: $974 million

Governor Timothy Kaine, who has already made major cuts to university and community-college funding, said that the state's shortfall in its two-year budget could triple, to about $3 billion, if the economy's rapid decline continues. Kaine's plan also calls for slashing 1,500 state jobs and increasing the cigarette tax. Tax revenues are down partly because of the falling real estate market and drops in retail sales revenue.

South Carolina

Rank: 10 (Previous Rank: 16)
Budget gap (as a % of the total budget): 11.70%
Total gap: $804 million
Gap before budget was approved: $250 million
Additional midyear gap: $554 million

With the economy weakening, state officials said that the $7 billion budget might need to be cut by a further $250 million. The state has already cut state university funding and programs for the elderly and disabled.

Click here to see the full list.