Governing with Tight Budgets

Changing demographics, technology, and inflation are creating an increasingly difficult environment for state budgets. An aging population puts more pressure on spending programs while reducing tax revenues from some sources. State sales tax revenue systems have not kept up as technology has changed the marketplace. Costs of government programs keep rising, particularly health care, while inflation erodes excise tax revenue. States must face these emerging pressures as they continue to recover from the Great Recession. To keep a functioning government, legislators will need to make difficult tradeoffs between revenue increases and spending cuts. This brief examines the history and outlook of state revenues and expenditures with particular attention to the effects of the last recession on state fiscal policy.