43 states in financial trouble

The recession has most states unable to cover expenses, according to the Center on Budget and Policy Priorities, and states should expect tough times ahead.

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By Catherine Clifford, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- The recession has state-level fiscal budgets in crisis mode, according to a report released Wednesday.

The Center on Budget and Policy Priorities, an organization that works on the state and federal level on policy research and analysis, said 43 states are facing shortfalls in their budgets for this year and/or next year.

Most state budgets start on July 1, which means they are nearly half-way through their fiscal year.

In order to break even for the current fiscal year, more than half of the states already cut spending, used reserves or raised revenues. That leaves most troubled states out of other options for the current fiscal year.

According to the report from the Center on Budget and Policy Priorities, new budget gaps have appeared in the budgets of 37 states, plus the District of Columbia. The organization estimates that current budget gaps total $31.2 billion, or 7.2% of these states' budgets.

Those states with budgetary problems added to the shortfalls they inherited from the previous fiscal year. At the end of the last fiscal year, 29 states had shortfalls topping $48 billion.

The budgetary shortfalls that states face in the current fiscal year are likely to plague states in the coming budgetary year, the report concludes.

And 28 states have already projected that they will be unable to eliminate the gap in their budgets in fiscal year 2010. For the 21 states that have already put a dollar estimate on their budgetary gap, fiscal year 2010 could have a budgetary shortfall of more than $60 billion.

The report suggests that because the current recession is worse than the previous recession, the Center on Budget and Policy Priorities projected that nearly all states will face shortfalls, and the deficits should end up totaling over $100 billion in fiscal year 2010.

With unemployment rates that have already surpassed levels from the last recession, states will collect fewer income taxes and be drawn on to provide increased services to residents. And with consumers' reduced access to sources of home equity loans, the report expects states to collect less income tax.

As states attempt to get their budgets in line for the new fiscal year, the report says that budget constraints are causing 25 states to reduce services to their residences. So far 17 states have already made cuts or are considering cuts to programs that affect low-income children's and family's access to health insurance and health care services.

According to the report, 16 states are reducing or are considering cutting funds to K-12 and early education. And at least 21 states have already implemented or proposed cuts of funds to public colleges and universities.

And states are chopping at their employee count, too. At least 20 states have proposed or implemented cuts to their state workforce.

The report from the organization suggest the federal government provide states with stimulus money soon, instead of waiting for states to get further in trouble, and that the aid should be larger than the amount of money given to states in 2003, following the previous recession.

Last week, President-elect Barack Obama told state governors from across the country that he wanted them to help him create an economic recovery package.

At a National Governors' Association meeting in Philadelphia, Obama and Vice President-elect Joe Biden met with governors about what stimulus states need to help their economies.  To top of page

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