Despite minor improvements and some signs of recovery, states in the U.S. are still experiencing substantial fiscal distress from the recession. As of the first quarter of 2011, revenues have remained roughly around nine percent below the level they were just before the recession began. Experts say that this is one indicator that the road to recovery will be long and demanding. As of today some 42 states and the District of Columbia have projected shortfalls that total in $103 billion for FY2012 (which began on July 1st for most states). “Shortfalls” are the extent to which a state’s revenues fall short of the cost of providing services to their residents. To compensate for these shortfalls, and in turn the growing budget gaps, many states are enacting deep spending cuts in important public services, while some states are raising taxes.
Large campuses, long traditions, and a love for sports are not the only things states in the Big Ten Conference have in common, spending cuts and deep fiscal issues plague states in the Big Ten in very similar fashions. In FY 2011, the Big Ten states had some of the worst budget gaps in the country. Illinois topped the list on states in our conference with the highest budget gap at 13.5 billion. Recently added Nebraska has the lowest budget gap at 329 million, while Michigan lies in the lower middle at about 2 billion. To deal with these budget shortfalls states have implemented major spending cuts in services such as public health, K-12 education, elderly disability and the state workforce. For example, Michigan and Minnesota have both stopped enrollment into programs that extend services to people with disabilities.
It is important to note that while not all states in our conference have enacted cuts to every one of these areas of public service, all twelve Big Ten states enacted major spending cuts to higher education. Minnesota’s cuts have caused approximately 9,400 students to lose their state financial aid grants entirely, while other students have had theirs cut by 19 percent. Michigan has reduced student financial aid by over 61 percent this past fiscal year as well as eliminating nursing scholarships, the Michigan Promise scholarship and many others. Rep. Governor Tom Corbett of Pennsylvania has planned to cut appropriations for public colleges and universities by 50 percent causing Penn State’s state funded budget to go from 8 to 4 percent (a $182 million dollar reduction).
As this slow growth to economic recovery continues the outlook for the Big Ten states is not an easy one. All of the states in our conference with the exception of Indiana have projected shortfalls for FY2012 and they are still using the same practices to deal with revenue issues; spending cuts. States continue to cut spending in important areas of public services and experts believe this strategy does more harm than good. When states cut spending they harm the most vulnerable citizens and slow down economic activity. Studies show that in the long term spending cuts lead to job loss and reduction in services, which in turn slows the demand for business. Lawmakers in Michigan and many other states continue to cut funding for things such as K-12 education, which will now see $470 dollar spending cut per student for FY2012 as well as other cuts. Also, Wisconsin is cutting the state’s earned income tax credit by 21 percent as well as cutting K-12 spending by 8 percent ($740 million) to equalize funding across districts.
On the bright side, although economic recovery is slow, it is still happening. Illinois was one of the only states this past fiscal year that raised revenue to help resolve their budget shortfalls by increasing personal and corporate income taxes. For FY2013 Michigan is one of the few states that has projected a balanced budget.