State Budgeting Issues Essay

1841 words - 7 pages

To say it’s been a rough span of years for the state and local governments would be an understatement during this recession. From 2008 to present day all states have struggled to balance their budget and not run a deficit. Throughout American history, this is said to be the worst recession since 1947 after World War II. Revenues fell substantially and unemployment went into the double digits. Throughout this struggle we’ve seen cuts in education, public services, increases in taxes and spending cuts. This recession has affected businesses and residence raging from young to elderly. The federal government has stepped in to help by providing the American Recover and Reinvestment Act (ARRA) but this eventually will spiral down to its finish as well. Some reasons states found themselves in this position is because states are required to balance the budget each year, revenues fell and there was little money in reserve for each state in this emergency situation. With all of these issues unsolved and unchanging the state’s governments have gone through a tough time trying to dig themselves out of the financial down fall they have all experienced.
The states by federal law are required to balance their budget every year unlike the federal government. The states also cannot run a deficit, or spend money that they do not have in upcoming fiscal year. The states must eradicate their budget gaps by cutting spending, increasing taxes, cutting services and drawing on reserve funds. The first problem that the states faced is they had no emergency funds. During this recession the federal government created a stimulus law for the states, the American Recovery and Reinvestment Act (ARRA). In this act it provided $787 billion and the state governments received $300 billion (Wilson 1). These funds provided for four key programs: “ $54 billion fiscal Stabilization Funds primarily to stave off cuts in the states education spending, $90 billion in Fiscal Relief Funds meant to shore up financing for state Medicaid, $40 billion to allow states to extend and increase unemployment insurance and $70 billion to fund transportation” (Wilson 1). For example, “California had a budget gap of 37%” (Wilson/Gerst 4). California was a state tremendously affected negatively by the recession. California had no emergency funds so when the recession hit if it were not for the American Recovery and Reinvestment Act they had no money to offset the damages of the economy forcing them to raise taxes. The crisis starts with the macroeconomic structure failure. The issues effecting the economy were not evaluated closely enough on what was causing the economic issue.
Although ARRA funding did help, the money reduces over time and cutting off completely in 2012. When this funding is allocated it is given to help balance the budget without having to increase taxes and cut necessary public services. The money was not freely given to the states to use as they please. The funding had...

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