February Fiscal Facts: It's the Recession

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Nearly every state has faced recession-driven revenue declines

There has been a lot of talk that Pennsylvania’s fiscal challenges are a result of overspending. The facts tell a different story.

The situation in late 2009 (Center on Budget & Policy Priorities)

Every state with the exception of North Dakota has faced budget deficits in the past few years. The primary culprit: loss of state tax revenue.

As a result of the Great Recession, state tax collections declined, on average, by 11% in the 2009-10 Fiscal Year — the largest drop on record. Making matters worse, growing numbers of Americans lost jobs, work hours, and their homes, driving up demand for state services.

The recession impacted states of all stripes — big and small, high-spending and low-spending. Even famously low-spending Texas, with its booming oil and gas business and lower-than-average unemployment, has seen its budget pushed into the red by drastic revenue declines. As Texas starts its new two-year budget cycle, the state has a $15 billion to $25 billion hole to fill (as much as 30% of the current budget).

Most states, like Pennsylvania, rely heavily on sales and income taxes. In 2008 and 2009, states saw these tax collections decline dramatically, with the worst occurring as the Great Recession officially ended in mid-2009. Tax collections continued to fall through the rest of 2009.