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State budgets facing falling revenue, budget deficits

January 1, 2002


Rob Grunewald Regional Economic Analyst
State budgets facing falling revenue, budget deficits

The slowing economy has impacted state government coffers, according to an October survey conducted by the National Conference of State Legislatures (NCSL). Nationally, 44 states reported that revenues fell below forecast levels during the first few months of the fiscal year, which for most states started July 1. That's more than double the number reported just eight months earlier.

In February, only 19 states reported that revenues ran short of forecasts. The October survey found that to cover such deficits 20 states will or might use reserve funds to balance their fiscal year 2002 budget.

The district isn't immune to the problem. As of December, Minnesota, Wisconsin and South Dakota all reported budget shortfalls. Both Minnesota and South Dakota have reserve funds available to help buffer at least some of the projected reductions in revenue. Wisconsin has instituted a hiring freeze and is taking steps to cut its budget. Meanwhile, Montana and North Dakota report that revenues are on track to meet budgeted expenditures.

Below are state revenue and budget outlook updates based on comments from the NCSL survey and subsequent reports.


Due to a sharp decline in revenue, the state's projected budget shortfall is expected to reach about $2 billion, according to the state's economic forecast. The governor and legislative leaders are discussing steps to address the shortfall, which may include drawing from the state's $1 billion reserve fund. The regular legislative session begins Jan. 29.


There is not a budget shortfall. Revenue growth is about on track; income taxes are still coming in strong. A surplus is available due to income tax collections during fiscal year 2001 that exceeded estimates and were carried to the current fiscal year.

North Dakota

There is not a budget shortfall. As of the October survey, revenue collections were down only about 1 percent from forecast through the first quarter; revenue was reported on track in early December.

South Dakota

State government will need to draw $47.5 million from reserve funds to balance its budget for this year and the following year due to falling revenues. The governor has proposed a budget for the next fiscal year that will remain near the current level.


An estimated budget shortfall of between $300 million and $1.3 billion has spurred the governor to freeze the hiring of all nonessential state personnel and to order state agencies to cut their budgets by 3.5 percent (see "Peeking Under Wisconsin's deficit blanket").