By John Shaw

WASHINGTON (MNI) - A fiscal survey of U.S. state governments released Thursday shows that state governments continue to be hammered by the national recession which began in December in 2007 and probably ended this September.

The preliminary review of the Fiscal Survey of States, a summary of state finances compiled by the National Governors Association and the National Association of State Budget Officers, paints a dark fiscal picture in the states.

It says that plummeting revenues forced state governments to reduce general fund expenditures by 4.8% in fiscal 2009 and they are expected to cut expenditures by 4% in FY'10.

This would be the first time that state spending has declined in consecutive years since the survey has been conducted.

"The severe national recession drastically reduced tax revenues from every revenue source during fiscal 2009, and revenue collections are forecasted to continue their decline in fiscal 2010," the report says.

"As state revenue collections historically lag any national economic recovery, state revenues will remain depressed throughout fiscal 2010 and likely into fiscal years 2011 and 2012," it says.

The report says that overall, state revenues fell 7.5% in FY09, which for most states ended June 30 of this year.

"Revenues will likely continue on this downward trend for another one or two quarters before turning up slowly," it adds.

The report said that state governments face a cumulative $250 billion in budget shortfalls between FY'09 and FY'11.

Of this $250 billion, states closed about $73 billion in budget gaps during FY'09 and $113 billion before the enactments of their FY'10 budgets to bring them into balance despite "drastically declining revenues."

Scott Pattison, the executive director of NASBO, said the report shows a grim fiscal landscape for state governments.

"These are the worst numbers we've ever seen in the decades of putting together this report," he said.

"States have been forced to lay off and furlough employees, raise taxes, drain rainy day funds and sharply cut state spending in ways that impact every part of state government," he added.

Raymond Scheppach, executive director of the NGA, said state governments are likely to confront a decade-long challenge to rebuild their fiscal positions.

"States will continue to struggle over the next decade because of the combination of the length and depth of this economic downturn, the projected slow recovery and the overhang of unmet needs," he said.

Scheppach said that during this crisis, state governments have postponed investments in infrastructure, drawn down contingency funds and have not replenished retiree pension and health care trust funds. "The bottom line is that states will not fully recover from this recession until later in the next decade," he said.

The report says that this year's $787 billion fiscal stimulus plan allocated nearly $135 billion for emergency funding. This has allowed states to "avoid draconian cuts to state services," it says.

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