States Cut Spending and Raise Taxes to Address Revenue Shortfalls

After difficult legislative sessions that often stretched into the summer, most states have adopted budgets for their 2003-2004 fiscal year, which began July 1. A report from the National Conference of State Legislatures (NCSL) summarizes the spending cuts and tax and fee increases enacted to address what for most states was the largest budget deficit in decades, made even more challenging because it was also the second or third consecutive year of shortfalls.

For the 42 states covered by the report, reaching resolution to budget impasses meant major spending cuts (31 states), including;

cuts to K-12 education in 11 states,
use of rainy day funds in states where those funds were not yet depleted, and
reductions in state workforces.

Only 17 of the 42 states reported raising taxes, and 30 states raised fees. In these states, sales tax increases will be the largest source of new state revenue for the 2003-04 fiscal year, followed by fee increases, and personal income tax increases.

Missing from the data in the report are eight states, including California, with the largest state revenue shortfall at about $38 billion, and Oregon, where the governor and legislators continue to struggle with the state education and health care budgets and with proposed tax and fee increases.

The NCSL report does not include an assessment of the impact on local taxes.

Prepared July 30, 2003