Budget Basics

Basics
While fiscal circumstances and fiscal politics vary considerable from state to state, there is enough common ground to allow for some broad-stroke budget basics. As a general rule, about three quarters of state revenues come from state income and sales taxes (although nine states [AK, FL, NV, NH, SD, TN, TX, WA, WY] have no personal income tax taxes, and five [AK, DE, MT, NH, OR] have no state sales tax), and about one-quarter comes from federal transfers (for programs things like education and Medicaid). And, as a general rule, about half of state spending goes to education and health care—the rest going to a wide variety of other services, such as transportation, corrections, pensions and health benefits for public employees, care for the mentally ill and developmentally disabled, assistance to low-income families, economic development, environmental protection, state police, parks and recreation, and aid to local governments. Unlike the federal government, every state except Vermont is required (by constitution or statute) to balance its budget. In other words, states generally cannot pay for ongoing expenditures using borrowed funds. States can — and most do — borrow for capital expenses, such as new roads and schools. They do this by selling bonds to investors, which states then repay over a set term (e.g., 20 years), with interest. Capital expenses are typically not considered part of the general fund, and public finance experts generally consider borrowing for capital expenses to be sound practice.

Learn More
The Center on Budget and Policy Priorities (CBPP) is the lead policy organizations working at the federal and state levels; CBPP’s State Fiscal Analysis Initiative brings together over 30 state groups working on budget and policy issues. The National Association of State Budget Officers provides professional support, but also many other resources—including an annual survey of state finances.

Online budget calculators have become quite popular, but most versions simply ask participants where to cut. There are a number of good progressive versions, including Build a Better Budget, The New York Times' You Fix the Budget, the Visual Budget, and--at the State level--the California Budget Challenge.

States in Recession
The budgetary shortfalls plaguing most states are a direct consequence of a collapse in state revenues caused by the recession. This is a key point: What states face is a revenue problem not a spending problem. In fact, states have been remarkably prudent in recent years: state spending is a smaller share of the economy now than it was a decade ago, and most states actually built up healthy reserves (now largely exhausted) in the years leading up to the recession. In turn, the policy implications are clear: the mania for tax-cutting only promises to make things worse.

For concise graphical overview of state budgetary circumstances, see this slide show from the Center on Budget and Policy Priorities.

Video: Taxes 101

Video: The Story of Broke

Recent Research Highlights

Added March 15, 2011
Issue: Budget Basics, Other
State: General Interest

Added December 14, 2011 Source: Policy Matters Ohio
Issue: Budget Basics
State: Ohio

Added July 19, 2011 Source: Arise Citizens' Policy Project
Issue: Budget Basics
State: Alabama

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