The states' current fiscal crisis is due not only to the country’s economic downturn but also to changes in fiscal federalism that have exposed state fiscal systems to the impacts of federal policymaking, economic developments and demographic changes to greater degrees than in the past. Essentially, the states face growing long-term contradictions between escalating spending pressures and eroding tax bases over which states have only limited control. Short-term crisis-management actions, such as cutting spending, increasing taxes, accelerating tax collections, delaying bill payments, expanding gambling and using up reserves, are damaging, stopgap tactics. Long-term solutions will require more fundamental remedial fiscal reform by both the federal government and the states.
Trends in fiscal federalism: Is fiscal federalism fizzling?