Base Case projections of future budget conditions were developed for each state. In developing these projections, the study examined each state's revenue and spending structures and assumed, as a starting point, a balanced budget* in year one, i.e., after state and local governments address their current cyclical—or short-term—budget shortfalls. Thus the projected fiscal conditions are in addition to the shortfalls states will face as they continue to work off the effects of the 2001 recession.
Because they examine structural conditions, the analyses do not project actual surpluses or deficits. Instead, they look at fiscal imbalances (gaps between revenue and spending).
Actual state budgets in the year 2013 are likely to be balanced. But the projected imbalances shed light on the extent of pressure states are likely to face and the difficult choices they may have to make to maintain balanced budgets.
* By law, most states must balance their budgets at regular intervals. States either cut services or raise taxes if they encounter revenue shortfalls, and generally increase spending or cut taxes if they run a surplus.