During the debate over the various budget “stimulus” bills, we’ve been trying to point out the problem with using $4.5 billion in federal money to balance the state’s budget; namely, it creates a giant hole in the following budget that state taxpayers may be asked to fill.

The Rockerfeller Institute has taken a look at state budgets nationwide, and has attempted to calculate the gaps that will be found in future state budgets when the federal stimulus spigot is turned off.  In their rosiest growth scenario, state budgets across the U.S. will face cuts of 4%, or $70 billion – but if growth continues to stagger, they estimate the cuts at 6% and $100 billion, respectively.

Keep in mind – in Governor Doyle’s 2009-11 proposed budget, he still expects (perhaps while wearing rose-colored glasses) tax receipts to increase by 2.6% in 2009-10.  And that small increase has forced him to declare this recession to be a catastrophe.  Imagine what would happen if the budget actually decreased by between 4% and 6%?  According to this report, that’s where state budgets are headed nationally when federal funds aren’t there to prop up the unrealistic spending created in these next two years.

Some of the report’s highlights:

  • The federal stimulus package will provide fiscal relief to state governments exceeding $150 billion over the 2008-09, 2009-10, and 2010-11 state fiscal years.
  • Although the aid is massive, it is temporary. In the best of worlds, as the stimulus aid wanes, the economic recovery will take hold and state tax revenue will rise sharply, as it has after past recessions.
  • But even under optimistic assumptions, the revenue recovery will not be sharp enough or soon enough to avoid the need for significant budget cuts or tax increases. If the tax revenue falloff and recovery aremuch like that of the 1990 fiscal crisis, as the stimulus aid goes away in 2011-12, states could face a fiscal gap of 4 percent of general expenditures, roughly comparable to annual gaps of $70 billion.
  • Under alternative assumptions that lead to pre-stimulus budget gaps of nearly $370 billion over the next 2.5 years-not a worst-case scenario-states could face a 2011-12 fiscal gap of more than 6 percent of state general expenditures, or more than $100 billion. Under any likely scenario, states will face significant budget problems when the new federal aid runs out.