Citation URL: http://www.urban.org/RebeccaSteinbach

This report is a collection of occasional papers on technical issues in the design, implementation, and operation of the 2002 round of the NSAF. It is a companion report to the 1999 methodology series Report No. 7 NSAF Collection of Papers and the 1997 methodology series Report No. 16 NSAF Technical Papers. All the papers in this collection were presented at either the annual May American Association for Public Opinion Research conference or the annual August Joint Statistical Meetings.

This analysis of seven states (California, Colorado, Florida, Michigan, Mississippi, New Jersey, and Washington) shows that the severity of the current revenue crisis far exceeds that of the recession that triggered it because states cut taxes and expanded programs based on unsustainable revenue growth during the late 1990s. All of the states studied responded to revenue declines with short-term solutions -- using reserves, transferring other funds to the general fund, refinancing debt, and shifting expenditures or revenues across fiscal years. All but New Jersey and Washington cut spending. Only New Jersey relied heavily on tax increases. The authors suggest that states should be realistic about the sustainability of future revenue trends and should not count on federal help. States should also build up reserves and be able to draw on them when needed, and should make tax policies symmetrical rather than place special barriers against tax increases.

In FY 2002 and FY 2003, states responded to fiscal stress by using one-time revenue sources such as reserves and borrowing against future tobacco settlement payments. States took modest steps to increase revenues by increasing cigarette taxes, business taxes, and gambling revenues while avoiding increases in income or sales tax rates. States reduced spending by implementing across-the-board cuts, delaying planned program expansions, and reducing state labor costs and payments to private providers. Federal maintenance of effort requirements in TANF and high matching rates in Medicaid and SCHIP protected these programs to some extent. As the budget crisis deepens in FY 2004, cuts in social programs are likely to be larger. The report is based on visits to 7 states.

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