ATLANTA — With the nation’s economy at its healthiest since the Great Recession, a surprising trend is emerging among the states — large budget gaps.
An Associated Press analysis of statehouse finances across the country shows that at least 22 states project shortfalls for the coming fiscal year. The deficits recall recession-era anxiety about plunging tax revenue and deep cuts to education, social services and other government-funded programs.
The number of states facing budget gaps prompted Standard & Poor’s Ratings Service to call the trend a sort of “early warning.”
“After all, if a state is grappling with a budget deficit now, with the economic expansion approaching its sixth anniversary, what will be its condition when the next slowdown strikes?” credit analyst Gabriel Petek wrote in a recent report.
The forces at work today are somewhat different than when the recession took hold in 2008. In some states, revenue growth has been stagnant, missing projections and making it difficult to keep pace with expanding populations and rising costs for health care and education. Other states have been hurt by a decline in oil prices or seen their efforts to promote growth through tax cuts fail to work as anticipated.
The result is a nation divided between states such as California and Colorado that are riding the wave of the economic recovery and others such as Illinois and Pennsylvania that appear closer to bust than boom.
A majority of states have failed to climb back to their pre-recession status, in terms of tax revenue, financial reserves and employment rates, said Barb Rosewicz, who tracks the fiscal health of states for The Pew Charitable Trusts.
Nationally, total tax revenue coming to the states has been rising, but the pace has been slow as employment continues to lag pre-recession levels in more than half the states, according to the Pew Charitable Trusts. Pew also found that 30 states are collecting less revenue than at their peak.
“What we are seeing across states right now is an economic and financial recovery that is a little bit different than the recoveries we’ve seen in the past,” said Emily Raimes, a vice president with Moody’s Investors Service who tracks state government finances.
