ALTERNATE SCENARIOS PROJECT DEEPER DEFICITS ...
OR BRIGHTER PROSPECTS


Changing some of the Base Case projections' key assumptions would yield scenarios showing even more fiscal pressure on state and local governments.

It is reasonable to assume, for instance, that ample public support exists for increasing spending on K–12 education, given recent policies to raise standards, reduce class sizes, and raise requirements for teacher qualifications. The track record supports this assumption: in the 1990s, real per-pupil spending in K–12 increased by more than 1% annually; in the 1980s, it increased by approximately 3.3% annually; and in the preceding three decades, it increased on average by more than 2.4% annually.

Deeper Deficits ...


These alternate sets of projections would paint a gloomier picture of the state fiscal environment:

If state and local governments increase real per-pupil spending in K–12 education by 1.5% annually—instead of none as assumed in the Base Case projections—45 states would face deficits of 5% or more, and the average projected shortfall increases from 5.7% to 8.6%.
If states increase spending in both K–12 education and higher education by 1%, results are similar, but the distribution differs across states: 44 states would face deficits of 5% or more, and the average shortfall is 8.4%.

Brighter Prospects ...


Under other plausible assumptions, fiscal prospects could improve:

If states were able to promptly stem sales tax losses related to Internet commerce, the average deficit falls from 5.7% to 4.5%, and only 20 states would face deficits of 5% or more.
If growth in Medicaid costs were slowed by 1% across the board, the average deficit falls from 5.7% to 4.5%, 49 states (rather than all 50) would face deficits, and only 21 would face deficits of 5% or more.
If there were no cuts in federal grants to states, the average budget deficit falls from 5.7% to 2.7%. This result highlights the interconnectedness of federal and state budgets and demonstrates the sensitivity of state budgets to federal actions.


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