Report: States Facing More Financial Stress

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The slow economic recovery hasn't helped some state legislatures deal with their crippled budgets.

A new report says state leaders may have to cut more services to deal with dwindling help from the federal government and a slow recovery in tax revenue.

States will spend about $43 billion in economic stimulus money during the current fiscal year, which ends June 30. After that, they will probably have to get by with less federal help.

The report from the National Governors Association and the National Association of State Budget Officers warned of "extremely tight fiscal conditions for states" as federal support winds down.

Critics of the economic stimulus legislation note that it failed to prevent a large jump in the unemployment rate. But the report credited the money with helping states avoid "draconian cuts" to Medicaid, education, and other programs.

Before Congress passed the stimulus, states relied on the federal government to cover a little more than a quarter of their spending. That share has increased to nearly 35 percent, according to the report based on a survey of state budget officials.

Some states were already forced to make mid-year budget cuts. Of the states that made cuts this year, 35 reduced spending on elementary and secondary education and 32 lowered spending on higher education.

Transportation faced the fewest cuts, the report revealed.

Not all state budget offices have completed their forecasts. But at least 23 states anticipate budget deficits totaling $40.5 billion by 2012.

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