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date: 26 June 2022

Abstract and Keywords

This article analyzes the challenge of state budgeting during periods of dramatic and unplanned declines in state revenue collections. Most public finance textbooks describe the budget process as an orderly cycle of preparation, approval, execution, and evaluation. When governments are experiencing a steady growth or only marginal declines in revenues such as during the past two decades (1989–2009), it's easy to see how state budget officials can become accustomed to a predictable, “regular rhythm.” Thus, when the Great Recession hit, a series of month-after-month and quarter-after-quarter revenue shortfalls affected nearly all state budgets. The result was that with little warning and preparation, policymakers faced midyear budget deficits. This article takes on the topic of managing midyear budget adjustments. Beginning with a review of the institutional tools available to governors and legislatures (e.g., allotments, apportionment, budgeting, impoundments, special fund transfers, fund withholdings, furloughs), the article carries out a study of how five states went about balancing their budgets in 2009–2010 and how the lessons from these state responses can inform those dealing with the next fiscal crisis.

Keywords: state budgeting, state revenue collection, Great Recession, revenue shortfalls, fiscal crisis, state responses

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