State Budget Woes Canceling Out Federal Stimulus

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A June 3 reportfrom the National Governors Association and the National Association of State Budget Officers shows that the states have cut aggregate spending by $74.4 billion, or 10.8 percent, since 2008. The expiration of $55 billion in temporary federal aid to the states could lead to further substantial spending cuts beginning on July 1.

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Budget expert Stan Collender warnedon June 8 that a sharp cutback in state spending mandated by state balanced budget requirements could have a negative effect on the economy as a whole. [...]

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A May 26 report from Pewreviewed the responses of 13 cities to the recession. Virtually all were enacting broad based tax increases as well as new fees, job cuts and reductions in pay and benefits for municipal workers. [...]

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A March 5 OECD studyexamined the cyclical behavior of subnational governments throughout the OECD. It found that such governments in the U.S. behaved in a far more cyclical manner — exacerbating the business cycle rather than moderating it — than in any other major country. A February studyby economists Joshua Aizenman and Gurnain Kaur Pasricha found that fiscal contraction in the states offset almost 100 percent of the fiscal stimulus at the federal level in 2009.