Structurally unbalanced: Cyclical and structural deficits in California and the Intermountain West

Though the Great Recession may be officially over, economic recovery is slow and tentative, particularly in California and much of the Intermountain West. Among other challenges, the protracted downturn in these states has exposed and aggravated a huge public-sector fiscal crisis—with disconcerting implications for citizens and states’ long-term economic health. This brief takes a careful look at the fiscal situation in Arizona, California, Colorado, and Nevada, examining both their serious cyclical budget shortfalls—those resulting from the recession and its aftermath—as well as the critical longer-term structural imbalances between revenues and expenditures that have developed in Arizona, California, and, to a lesser extent, Nevada. Along these lines, the study uses a unique methodology to estimate the size of the states’ structural deficits (or, in Colorado, the surplus) and explores the mix of forces, particularly the policy choices, that created them. After that, the authors highlight the dramatic impacts these states’ fiscal challenges, and government responses to them, are having on service delivery as well as local governments. The brief suggests some of the steps state policymakers must take to close their budget gaps over the short and longer term. First, it urges better policymaking and prods leaders to broaden, balance, and diversify their revenue bases while looking to ensure a long-haul balance of taxing and spending. And second, the report recommends that the states improve the information sharing and budgeting processes through which fiscal problems are understood—so they may be averted