The Associated Press has recently done a study showing that even in economic recovery, 22 states are looking at budget shortfalls for the upcoming year. That's an ominous sign, causing consternation about how bad things might get the next time the economy goes back into a downturn. There are two main culprits: states that have tried to spur growth with tax cuts, and states that rely heavily on oil revenues. It's more confirmation that the trickle-down "tax cut your way to prosperity" plan doesn't seem to work.
California and Colorado are singled out as two states that are running surpluses and in strong financial shape. California followed a liberal program; voters approved tax increases on high incomes, instituted a statewide sales tax increase, and gave the legislature authority to pass budgets with a simple majority. It's also committing $1 billion to water projects and going ahead with high speed rail construction. Contrary to conservative expectations, the Golden State is on its way to a projected $3 billion surplus this year.
Kansas and Alabama are highlighted as states in which tax cutting fever failed to produce strong growth rates and is leading instead to substantial deficits that will require either restoring the taxes or severe cuts to education and the judicial system in order to restore balance. Kansas school districts are closing early this year because they are running out of money.Alaska is the poster child for excessive reliance on oil revenues. With global prices down by half from their peaks, Juneau faces an expected $3.2 billion deficit over the next two years.
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