Budget gaps and balanced-budget proposals in Third District states
The Great Recession has severely tested the strength of state finances and the soundness of state budget practices. Quarterly state tax revenues have declined year-over-year for a record five quarters, from the fourth quarter of 2008 through the fourth quarter of 2009. The depth of decline is also unprecedented, with a 16.5 percent drop in the second quarter of 2009. An immediate consequence is that states are facing massive fiscal shortfalls, triggering rounds of tax increases and service cuts, plus reliance on federal stimulus money, reserves, one-off actions, and borrowing against the future. The Third District states (Delaware, New Jersey, and Pennsylvania) have been similarly affected. Examining how each state is coping with the worst fiscal crisis of the last half-century sheds light on their respective fiscal practices and raises questions for further research. This report describes the scope of each state’s fiscal problems, including current and projected budget gaps, the effect of stimulus funding, and anticipated state-level policy responses. Key findings from this report include:  Budget gap estimates for Third District states vary significantly on a percentage-of-budget basis. The District’s aggregate gap is virtually identical to the national aggregate in FY 2009 and FY 2010, and somewhat smaller in FY 2011 than nationally.  Federal stimulus funding has reduced, but not eliminated, state budget gaps.  Delaware has avoided persistent structural budget problems and has been able to address this budget crisis with a balance of revenue increases, expenditure cuts, and federal stimulus aid, rather than deferring pension payments or employing other one-off strategies.  New Jersey has faced annual structural deficits since at least FY 1994 and will close its FY 2011 $10 billion budget gap in a technical sense. However, by relying on deferred payments and oneoff policies, New Jersey will fail to balance its budget from a long-term perspective.  Revenue declines were smaller for Pennsylvania, but the state has been heavily reliant on stimulus funds, it faces mounting long-term pension obligations, and it is responsible for an unusually large number of distressed cities and municipalities.
State tax revenue in the Third District
Recently several state governments have announced that their tax collections have fallen short of expectations. In the Third District states—Pennsylvania, New Jersey, and Delaware—state tax collections in recent months have been below amounts anticipated in state budgets. The governors of these states have announced reductions from budgeted spending. This report looks at the recent trend in state tax collections in the three states and reviews how state tax collections fared in past periods of economic weakness. The purpose is to understand how the current softening in national and regional economic conditions might affect state tax collections in the immediate future.
Growing slowly, getting older: demographic trends in the Third District states
National trends such as slower population growth, an aging population, and immigrants as a larger component of the population are mirrored in the Third District states (Pennsylvania, New Jersey, and Delaware). These trends are likely to persist and perhaps even accelerate well into the future. In "Growing Slowly, Getting Older: Demographic Trends in the Third District States," Tim Schiller reviews these trends and their possible interaction with health care and retirement benefit programs nationally and in the Third District states.