State Fiscal Relief: Essential to Economic Stimulus Plans
The current state budget deficit crisis has been widely characterized as the worst fiscal crisis since World War II. Almost all states are required by state law to balance their budgets every year. The economic slow down which puts additional demands on state benefit programs and declining state revenues due to federal tax cuts contribute to mounting state budget deficits. Current (state FY 2003) deficits are estimated at $50 billion and are expected to increase to $60-80 billion in state FY 2004 (which starts on July 1 in most states).
The Natioanl League of Cities report:
Overview
A federal and state fiscal crisis that is the largest the nation has experienced in decades is trickling down
to city governments, making it increasingly difficult for city officials to balance their own budgets.1
Faced with $110 billion in state budget shortfalls in 2003 and 2004, state governments cut aid to cities for
the first time in more than a decade. 2 3 At the federal level, the budget deficit is fast approaching $500
billion dollars due to tax cuts and increased spending. Yet, the federal government passed a fiscal relief
package that failed to address the needs of cities and their residents, or provide funding for No Child Left
Behind and homeland security mandates.
Cuts in state revenues can take many forms, given the realities and complexities of 50 different systems in
50 states. These cuts came in a variety of forms: in revenue sharing programs where the state provides
general purpose aid to cities or shares a percentage of a state-collected revenue source with cities; in tax
reimbursement programs where the state backfills city revenues repealed, decreased or transferred by
other state actions; in funds for designated purposes such as highway maintenance and construction; and,
in funds to offset the costs of state-mandated programs.
In some instances, states have cut revenues for cities, but are also passing along the authority for local
governments to raise taxes. In North Carolina, the elimination of local tax reimbursements was coupled
with the authority for counties to levy a sales tax, with an additional provision that the distribution of the
sales tax revenue should hold cities harmless. Similarly, when the state of Minnesota recently cut state
aid to cities it authorized the cities to raise up to 60 percent of the lost revenues through local property tax
increases. While the extension of local tax authority is a positive development, it should also be
recognized that state officials are passing along the political difficulty of raising taxes at the local level,
often in lieu of raising taxes at the state level.
