New Report Shows State Budget Cuts Have Hurt The Economy

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A new report from the Center on Budget and Policy Priorities, "Out of Balance: Cuts in Services Have Been States’ Primary Response to Budget Gaps, Harming the Nation’s Economy," places a spotlight on the right-wing assault on state budgets and the harmful effects of the growing trend of budget cuts.

The state budget gaps of the last five years led to $290 billion in cuts to public services and $100 billion in tax and fee increases. Those actions lengthened the recession and delayed the recovery. Because spending reductions were dominant, hundreds of thousands of jobs were lost; undermining education, health care and other state priorities, which likely will cause future economic harm to states. Federal aid mitigated the harmful effects of the spending cuts in the early years of the budget crunch, but its expiration last year had a catastrophic effect, making 2012 the worst year since the downturn began for cuts in funding for services.

The study looked at budget data for the last five years and found that more than 640,000 jobs have been cut by the states since 2008, undercutting the economic recovery and helping sustain a high unemployment rate nationally. Because 2012 has been the worst year for cuts since the recession began, further job losses are almost guaranteed.

The cuts have also led states to cancel contracts with vendors, reduce payments to businesses and nonprofits that provide services, and cut benefit payments to individuals — all steps that remove demand from the economy. There are long-term effects as well: By diminishing the quality of elementary and high schools, making college less affordable, and reducing residents’ access to health care, the cuts threaten to make the U.S. economy less competitive in coming decades.

While there has been a recent rebound in the growth of revenue at the state level, if the current rate of growth continues, it will take seven years to get back to where things were before the recession.

Overall, the methods used to balance state budgets — often a legal requirement — were very focused on methods that harm the economy:

  • Spending cuts 44.8 percent
  • Federal relief funds 24.0 percent
  • Tax and fee increases 15.5 percent
  • Raiding of rainy day funds and other dedicated revenue streams 8.7 percent
  • Other miscellaneous methods 7.0 percent

    States have engaged in such unsustainable and negative tactics to balance their budgets that many more citizens are in vulnerable situations than before the recession.

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