U.S. News

Fiscal 2011 could be hardest yet for states

WASHINGTON (Reuters) - U.S. states in fiscal 2011 could be facing the worst budget situation since the recession began in 2007, according to a think-tank report released on Tuesday.

States’ cumulative budget shortfall “will likely reach $140 billion in the coming year, the largest shortfall yet in a string of huge annual gaps that date back to the beginning of the recession,” said the Center on Budget and Policy Priorities.

Fiscal 2011 begins on Thursday for most states, which have turned to another round of cuts and tax increases to try to wipe out the gap. All states with the exception of Vermont must balance their budgets.

An estimated 10,000 families in Arizona will lose eligibility for temporary cash assistance and 284 workers who help low-income families enroll in assistance programs such as food stamps will be let go in Georgia, according to the report. The report also found many states are cutting public school funding and money for higher education.

Meanwhile, Kansas, New Mexico, Arizona, and Colorado are raising their sales taxes.

State and local government spending cuts have been so severe that they reduced the country’s Gross Domestic Product by half of a percentage point in the first quarter, CBPP said, citing the U.S. Bureau of Economic Analysis.

The U.S. Congress has considered measures to ameliorate the effects of the deep recession on the states, but fiscal conservatives have raised concerns over adding to the deficit to help states maintain employees and assistance programs. Last week, a measure that would send states additional money for Medicaid, the healthcare program for the poor administered by the states with federal reimbursements, stalled in the Senate.

On Tuesday, members of the House of Representatives said they would soon introduce legislation that would send $10 billion to states for schools.

Reporting by Lisa Lambert