FOR IMMEDIATE RELEASE:
Thursday, February 14, 2002

Contact:
Nancy Coleman or Karen Conner, (202) 775-8810

PRESS RELEASE

A new report released today by the Economic Policy Institute examines how the proposed federal budget places extra burdens on state and local budgets already cash-strapped by a recession economy. Budgeting Beyond the Beltway: How the Federal Budget Imperils State and Local Finances , by Max Sawicky, focuses on the difficulties states will face as they try to keep delivering essential services while closing the widening budget gaps.

“If these governments are forced to raise taxes and cut services, it could prolong the recession,” said Sawicky. “An excellent economic stimulus would be to increase aid to states for basic services and freeze the tax cuts scheduled to take place after 2004.”

Unlike the federal government, state law often mandates raising taxes and cutting spending to balance budgets. If the current economic trends continue, state and local governments as a whole will be forced to close an aggregate budget gap of nearly $100 billion by July 2003. Closing this gap could force cuts to basic services like education and transportation.

Some states will be better able to close that gap because of reserve funds put away when the economy was booming. But reserves in 15 states (including New York, California, Illinois, and Wisconsin) have fallen below generally accepted prudent levels.

The Bush administration’s budget proposal forces state and local budgets to absorb cuts to certain grants-in-aid programs, like the Community Services Block Grant and Economic Development Assistance. States must absorb those program cuts with the reduced revenues caused by federal tax cuts enacted last year.

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