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 Government Budgets and the Recovery Act
State and local governments, with revenues reduced sharply by the recession, are responding by cutting services, increasing tax rates, and drawing down reserves; they are also receiving some relief in the form of stimulus funds provided by the federal government. The stimulus funds legislated in the American Recovery and Reinvestment Act only partly offset the recession-induced shortfalls and are scheduled to phase out before most analysts believe state and local governments will see fiscal recovery well underway. Thus, observers are concerned that the state-local sector will create a substantial drag on the overall economy during fiscal year 2011 and into 2012. This brief compiles data on state gaps, responses, and stimulus funding nationwide and discusses potential implications for the national economy.
Deliberative Democracy and the Resource Curse: A Nationwide Experiment in Tanzania
Oil and gas discoveries in developing countries are often associated with short-sighted economic policies and, in response, calls to insulate resource management from populist impulses. We report on a randomized experiment testing methods to overcome this apparent tension between sound resource governance and democratic politics. Soon after Tanzania’s discovery of major natural gas reserves, we invited a nationally representative sample of voters to an intensive public deliberation of policy options featuring nationally recognized experts and small-group discussions. Democratic deliberation reinforced the public’s strong preference for rapid spending of gas revenues, but also increased support for various prudential and economically orthodox measures, including independent oversight of gas revenues, limits on government borrowing, and selling gas abroad rather than subsidizing fuel at home. These effects were driven by deliberation per se, rather than a pure information treatment, and show no evidence of contamination by facilitatoror peer-effects in group deliberations. www.cgdev.org Justin Sandefur, Nancy Birdsall, James Fishkin, and Mujobu Moyo