State Budgets Unlikely To Get Federal Assistance

02/28/2011 11:51 am ET | Updated May 25, 2011

Even as widening state budget deficits are becoming a potential stumbling block for economic recovery, Federal assistance seems unlikely.

With Washington lawmakers focused on getting the Federal budget in order, the prospect of aid for struggling states has all but left the conversation, the Washington Post reports. States and local governments face a fiscal crisis, experts say, since the Great Recession withered their revenue. Finding it increasingly difficult to meet their basic obligations, governments across the nation have had to lay off thousands of workers and will likely have to lay off many more, just to keep their fiscal houses in order.

With the unemployment rate around 9 percent, the economic recovery remains fragile. State budget cuts could make the situation worse, the Associated Press reported. As governments cut spending on education, jobs and safety net programs, average Americans, who are already contending with rising fuel prices, could see their economic situation worsen.

The present state budget dilemma would likely be far more severe without the Federal dollars that are currently propping up state budgets. As part of the stimulus package, states received Federal money to compensate for weakened revenue streams. Currently, that assistance covers about a third of state budget shortfalls, according to a recent report from the Center on Budget and Policy Priorities.

Federal assistance is quickly running dry. Next fiscal year, a total of about $6 billion will remain. State budget deficits will have grown to a combined $125 billion, according to the report.

As spending outpaces revenue, states have few solutions. State tax collection is currently 12 percent below pre-recession levels, according to another report from the Center on Budget and Policy Priorities. As the appetite for tax hikes remains virtually non-existent, savings will come from the other side of the ledger.

Already, states have cut 400,000 workers since 2008, the Washington Post notes. If they were to balance their budgets solely by laying off employees, another 850,000 workers would be dismissed.

State pain impacts budget troubles on the municipal level. Newark, New Jersey, for instance, has seen aid from the state drop by 40 percent between 2008 and 2010. As a result, Newark has had to make some difficult cuts, including laying off 13 percent of its police force.

New Jersey is expected to have a budget shortfall equal to about 37.4 percent of its current budget, according to the Center on Budget and Policy Priorities. Other states face bigger deficits: Illinois' projected shortfall is 44.9 percent of its current budget. Nevada's is 45.2 percent.

Federal lawmakers deprived states of one potential source of revenue when they allowed the Build America Bonds program -- which used Federal money to make it cheaper for states to borrow money -- to expire in December.