When it comes to fiscal crises, Connecticut is not alone. A new study shows two thirds of states nationwide are also facing budget shortfalls this year or next, and its authors say they need to think differently about their finances.
If misery loves company, then Connecticut, facing at least a $1 billion shortfall next fiscal year, can at least look around the nation at 32 other states which are in a similar position.
“Usually you don’t see most of the states facing revenue declines when the economy is expanding, so it is unusual,” said Elizabeth McNichol of the Center on Budget and Policy Priorities.
She said there are a variety of reasons for the budget woes, from falling oil prices, to last year’s lagging stock market, self-imposed tax cuts and structural issues, including Connecticut’s pension issues.
Which crisis applies to you depends where you are in the country. But the end result is the same.
"It’s not just a short term shortfall problem - it’s coming at a really bad time, when there’s a lot of uncertainty," said McNichol. "Next year, we don’t know what’s going to happen with federal aid, so it’s a good time to shore up your reserves and shore up your revenues."
Alaska has the biggest nut to crack - shortfalls of more than $2 billion this year and next appear to amount to 64 percent of the state's general fund. Illinois and Oklahoma are also in trouble, at 23 percent and 15 percent respectively. For comparison, Connecticut's budget shortfalls amount to nine percent of its general fund, according to the Center's analysis.
The Center is recommending that states take actions like broadening their sales tax, avoiding any more tax cuts, and fixing big problems, like pension obligations, over the long term.
McNichol said Connecticut should also consider removing its spending cap, which she said leaves little flexibility for addressing serious budget issues.
