State Government Finances: World War II to the Current Crises

tates are facing their most severe budget crises in the post-World War II era. Recent data from the National Conference of State Legislatures (NCSL), however, suggest that these budget crises may be softening. Initially, in April 2003, the NCSL reported that aggregate state budget deficits for fiscal year (FY) 2003 would be in the range of 20 to 30 billion, and possibly as large as 78 billion in FY 2004 1 ; more than half of the states were projecting a budget deficit in excess of 5 percent of general fund revenue for FY 2004, and one in four states was forecasting a deficit greater than 10 percent. In contrast to the April 2003 figures, the NCSL reported seven months later in November 2003 that state budget deficits totaled 17. 5 billion for FY 2003, states projected a cumulative deficit of 2. 8 billion for FY 2004, and only ten states were projecting budget deficits for FY 2004. 2 Much of the reduction in budget deficits is a result of spending cuts, tax and fee increases, and moderate revenue growth that occurred during late 2003. The National Governors Association reported in June 2003 that more than 37 states have reduced their FY 2003 budgets by 14. 5 billion using these various instruments. 3 However, the National Governors Association also reported that 19 states (a historically high number) still propose a negativegrowth budget for FY 2004. This article will explore the extent, causes, and proposed solutions of the current fiscal crises from a historical perspective of state finance. Although the current fiscal crises are severe, it becomes more difficult to assess without a more complete understanding of the historical changes that have occurred 1 NCSL (2003a).