Cash-Strapped States Facing Budget Crises, Governors Facing Tough Decisions


Cuomo compared the federal stimulus dollars to an addictive substance.

"We inhaled it and injected it into our body," Cuomo said. "And now it is gone."

The combination of still weak tax revenues and the federal stimulus money running out are creating the budget headaches for governors and state legislatures.

State tax revenues are gradually recovering from the economic crisis but most economists and policy experts say they will not fully recover until the nation's employment is at full strength, which could take years.

"At at time when states' own tax revenues are still very depressed, running about 12 percent below pre-recession levels, on top of that states now have to fill in for the funds that have gone away because the federal funds are running out," Johnson said.

Tad DeHaven, a budget analyst for the libertarian Cato Institute, said states get themselves into budget trouble by failing to prepare for rainy days.

"When times are good, the economy is good and when revenues are coming in, they spend it," DeHaven said. "They make promises to the work force that can prove costly in the long term and inevitably we have a downturn, revenues dry up and they plead poverty. But the problem is they don't implement the structural reforms necessary to smooth things out."

DeHaven said "Uncle Sam" ends up filling that void.

"In the long term there's a lot of questions about the federal government's ability to keep doing this, given its own financial problems," he said.

There are also questions about whether the bailout money allowed states to keep workers and services (Democrats) or whether it just let the states put off making the cuts needed to get their budgets in order (Republicans).

Either way, it does not look like any more money is heading out of Washington to state governments.

The House Republican majority has made it quite clear that they are unwilling to give any new federal funding to states -- "bailout" has almost become a dirty word.

"There will be no bailout of the states," said House Majority Leader Eric Cantor, R-Va. "The states can deal with this and have the ability to do so on their own."

"There era of the bailout is over," said Rep Patrick McHenry, R-N.C.

On the Senate side, Minority Leader Mitch McConnell also ruled out any new funding for states.

"There will be no bailouts, I can tell you that," the Kentucky Republican said. "No bailouts."

As an alternative, Congress is considering legislation that would allow states to declare bankruptcy. Currently only cities and some local municipalities can file for federal bankruptcy.

"We're exploring that as a reasonable option," Sen. John Cornyn, R-Texas, said of bankruptcy for states.

The possibility of that passing both the House and Senate is slim, given the Democrats' majority in the Senate. It's also unlikely that any governor would take the bankruptcy option; None have indicated that that is an option they would consider.

ABC News' Matthew Jaffe and John Parkinson contributed to this report.

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