Outlook gloomy for U.S. states' fiscal 2010: report

WASHINGTON (Reuters) - U.S. states face budget shortfalls of $166 billion for fiscal 2010, with the gap likely widening to more than $350 billion the following year, according to a report released on Monday.

The Center on Budget and Policy Priorities, a Washington think tank that tracks state spending, said that money from the federal economic stimulus plan enacted in February is closing roughly 40 percent of states' budget shortfalls.

In many states, revenue from sales, income and corporate taxes has declined more than legislators anticipated when they were crafting their budgets for fiscal 2010, which begins July 1 in most states.

Now 48 states will have to make cuts or raise taxes to make up for the shortfalls, and more than 20 have had to cut their healthcare budgets. Most states have laws forbidding ending the fiscal year with a deficit.

For fiscal 2011, at least 29 states are expecting gaps.

The American Recovery and Reinvestment Act provided direct relief for states and also gave them money for road repair, education and the Medicaid healthcare program for the poor.

(Reporting by Lisa Lambert; Editing by Dan Grebler)