State budget shortfalls and budget balancing strategies during and after the great recession of 2008

Abstract

This paper investigates how state governments used budget balancing strategies to cope with budget shortfalls in the fiscal years between 2009 and 2013. Using data from the Fiscal Survey reports and Comprehensive Annual Financial Statements (CAFRs) covering all fifty states, the paper summarizes and analyzes several types of strategies such as state savings, federal aid, revenue enhancement and expenditure cutting in response to budget shortfalls during and after the Great Recession of 2008. In addition, findings from the three case studies in New York, Texas and Washington show distinct patterns in these states’ choices of balancing strategies to cope with budget shortfalls. New York adopted a more balanced approach between revenue increasing and expenditure cutting strategies, whereas Washington and Texas implemented more severe expenditure cutting strategies to address budget shortfalls.

Budget Policies During and After the Oil Crisis of 2014: Comparative Analysis of Saudi Arabia, UAE, and Kuwait

“…An examination of these strategies within the context of the oil crisis of 2014 provides pivotal information for the reader and the literature. There are three main types of budget-balancing strategies that the literature offers, which are the utilization of sovereign wealth fund, revenue-increasing strategies and expenditure-reducing strategies (Truman, 2009;Shi, 2016;Maghyereh, Awartani, & Tziogkidis, 2017;Alkhateeb, Sultan, & Mahmood, 2017;Sultan & Haque, 2018). Below, a discussion of each category is provided.…”

“…First, the sovereign wealth fund is a country's savings or financial reserves, often named "budget stabilization fund" or "rainy days fund." In times of strong economy, countries put budget-surplus in a fund for use in times of unanticipated budget shortfalls (Shi, 2016). The fund is also known to be a low-risk investment that governments consider in order to continue providing civil and other services to their citizens without having to increase tax that might exacerbate an economic downturn (Shi, 2016;Truman, 2009).…”

“…In times of strong economy, countries put budget-surplus in a fund for use in times of unanticipated budget shortfalls (Shi, 2016). The fund is also known to be a low-risk investment that governments consider in order to continue providing civil and other services to their citizens without having to increase tax that might exacerbate an economic downturn (Shi, 2016;Truman, 2009). However, the mere existence of sovereign wealth fund does not guarantee the avoidance of hardship during severe budget shortfall.…”

“…Third, expenditure-reducing strategies are commonly known as a mid-year budget cuts that governments employ during economic recessions in order to avoid severe budget deficits (Shi, 2016;Garcia & Hé nin, 1999). In fact, governments are forced to utilize such strategies in order to cope with the heavy pressures from severe declines in revenue collections and increasing expenditure demands (Raudla, Douglas, Savi, & Randma-Liiv, 2017).…”

“…These countries were obligated to find alternative revenue resources to make up for the lost in budget. There were three main budget-balancing strategies that these countries considered to close the gap in the budget, which are withdrawing from the sovereign wealth fund, implementing revenue-increasing policies, and/or adopting expenditure-reducing policies (Shi, 2016;Presley & Westaway, 2017;Sultan & Haque, 2018). However, the question remains whether there are different patterns in budget-balancing strategies between countries; and how the different policies could have influenced the budget (Alkhateeb, Sultan, & Mahmood, 2017;Fattouh, Poudineh, & Sen, 2015).…”