Attacking the Fiscal Crisis: What the States Have Taught Us About the Way Forward

The nation is slowly emerging from its worst recession since the Great Depression. These are difficult times for many Americans, and all levels of government face stark realities of unsustainable fiscal policies. States face difficult choices in grappling with large budget gaps and long-term structural deficits. They also face the end of federal Recovery Act funding, which has helped fill current budget gaps. A lot can be learned from states’ responses to fiscal challenges. Most states are statutorily required to balance their operating budgets, and none have the luxury of the federal government’s vast borrowing power or ability to print money. As a result, states have had to explore difficult and potentially unpopular choices to combat their budget shortfalls.

This article, featured in the Summer 2011 Journal of Government Financial Management, and reproduced with the permission of the Association of Government Accountants, examines the fiscal stressors facing state governments and explores actions being taken by California, Florida, Illinois, New York and Texas. It then offers perspectives on drivers of successful deficit reduction.