SAN FRANCISCO, Feb 25 (Reuters) - Balancing state budgets solely or mainly with spending cuts will hurt those depending on state dollars and set back the economy's recovery, a Center on Budget and Policy Priorities report said on Friday.
The Washington-based center's report came as the U.S. government's measure of fourth-quarter growth was lowered on Friday to reflect a reduction in government spending that was more than double the initial estimate, led by less spending by state and local governments.
In all, government spending lopped 0.31 percentage point from GDP growth.
'States that rely solely or primarily on widespread budget cuts to close deficits are harming residents and businesses that need immediate assistance; they also are reducing demand in the economy and impeding their state's economic recovery,' the center's report said.
'While there might not be any perfect choices for closing deficits in an economic slump this deep and long, it is clear that a balanced approach -- rather than one that relies heavily or exclusively on spending cuts -- is useful in mitigating the damage,' the report said.
States must close large budget deficits -- the center estimates they face collective budget shortfalls of more than $125 billion -- and plans for spending cuts across programs are gaining ground in state capitals, where Republicans posted major gains in the November.
Democrats are also embracing spending cuts, notably in New York and California.
In New York, Democratic Governor Andrew Cuomo has proposed cutting billions of dollars in spending on schools and health programs and California's Democratic Governor Jerry Brown has proposed more than $12 billion in cuts to tackle a state budget gap estimated at more than $25 billion.
Brown also wants lawmakers to put a measure to voters in June asking them to extending tax increases set to expire this year to raise revenue for his budget-balancing plan.
According to the center, which focuses on how policies affect low-income families and individuals, proposed spending in most states for the next fiscal year would be below pre-recession levels.
'Strategies relying this heavily on spending cuts can be harmful,' the report said. 'States may leave residents without services they need, as has happened already in this recession and its aftermath as a result of budget cuts in the past three years; the problem is poised to deepen substantially in the budgets currently under consideration.'
Instead of relying on deep cuts, state governments could address their budget woes by more efficient spending, tapping reserves and rainy day funds, reconsidering tax breaks, improving tax collections, increasing taxes and prioritizing any cuts, the report said.
'The key is to construct a balanced approach to state budget balancing, instead of overly relying on spending cuts. The enormity of deficits in many states suggests that no one strategy can be sufficient on its own to fully close deficits,' the report said.
'By using a balanced approach, states can minimize harm to the individuals, families, and businesses that depend on state services, and can also avoid further damaging economies already made fragile by the pressures of a recession,' the report said.
(Reporting by Jim Christie; Editing by Diane Craft) Keywords: ECONOMY STATES/SPENDING CUTS (jim.christie@thomsonreuters.com; Reuters Messaging: jim.christie.reuters.com@reuters.net; +1-415-677-2539) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
The Washington-based center's report came as the U.S. government's measure of fourth-quarter growth was lowered on Friday to reflect a reduction in government spending that was more than double the initial estimate, led by less spending by state and local governments.
In all, government spending lopped 0.31 percentage point from GDP growth.
'States that rely solely or primarily on widespread budget cuts to close deficits are harming residents and businesses that need immediate assistance; they also are reducing demand in the economy and impeding their state's economic recovery,' the center's report said.
'While there might not be any perfect choices for closing deficits in an economic slump this deep and long, it is clear that a balanced approach -- rather than one that relies heavily or exclusively on spending cuts -- is useful in mitigating the damage,' the report said.
States must close large budget deficits -- the center estimates they face collective budget shortfalls of more than $125 billion -- and plans for spending cuts across programs are gaining ground in state capitals, where Republicans posted major gains in the November.
Democrats are also embracing spending cuts, notably in New York and California.
In New York, Democratic Governor Andrew Cuomo has proposed cutting billions of dollars in spending on schools and health programs and California's Democratic Governor Jerry Brown has proposed more than $12 billion in cuts to tackle a state budget gap estimated at more than $25 billion.
Brown also wants lawmakers to put a measure to voters in June asking them to extending tax increases set to expire this year to raise revenue for his budget-balancing plan.
According to the center, which focuses on how policies affect low-income families and individuals, proposed spending in most states for the next fiscal year would be below pre-recession levels.
'Strategies relying this heavily on spending cuts can be harmful,' the report said. 'States may leave residents without services they need, as has happened already in this recession and its aftermath as a result of budget cuts in the past three years; the problem is poised to deepen substantially in the budgets currently under consideration.'
Instead of relying on deep cuts, state governments could address their budget woes by more efficient spending, tapping reserves and rainy day funds, reconsidering tax breaks, improving tax collections, increasing taxes and prioritizing any cuts, the report said.
'The key is to construct a balanced approach to state budget balancing, instead of overly relying on spending cuts. The enormity of deficits in many states suggests that no one strategy can be sufficient on its own to fully close deficits,' the report said.
'By using a balanced approach, states can minimize harm to the individuals, families, and businesses that depend on state services, and can also avoid further damaging economies already made fragile by the pressures of a recession,' the report said.
(Reporting by Jim Christie; Editing by Diane Craft) Keywords: ECONOMY STATES/SPENDING CUTS (jim.christie@thomsonreuters.com; Reuters Messaging: jim.christie.reuters.com@reuters.net; +1-415-677-2539) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.