States Face 'Cliff’ As Stimulus End Opens $38B Hole

U.S. states are preparing for more budget cuts next year as tax revenue isn’t likely to rebound enough to replace almost $38 billion in aid that will be gone as federal economic stimulus ends, according to a report.

At least 31 states and Puerto Rico are forecasting deficits of $82.1 billion in the next fiscal year even as tax receipts are picking up, the National Conference of State Legislatures said today. Under a temporary mandate since 2009, the U.S. has provided economic aid to states, helping to pay government workers and shoulder the cost of the Medicaid program to provide health care for the poor. That aid will be gone, the group said.

“Although a recovering national economy is helping to stabilize state revenues in fiscal year 2011, serious budget challenges await state lawmakers in the new year,” the group said in the report. “This largely stems from fewer federal stimulus funds available for next year’s budgets.”

The report, which says states will get $37.9 billion less in stimulus money in fiscal 2012 compared with 2011, is the second in as many weeks to warn of renewed financial pressure on states as the funding winds down. Last week, Raymond Scheppach, executive director of the National Governors Association, said states may confront $175 billion in budget gaps through June 2013, forcing leaders to weigh spending cuts and tax increases.

As stimulus programs under the 2009 American Recovery and Reinvestment Act conclude and the money they have supplied stops flowing, it “will create big holes in state budgets -- what many officials are calling the ‘ARRA cliff’,” the report said.

State governments are also dealing with cost increases for health-care services and primary and secondary education, the Denver-based legislature group said in its report.                                              

More