Two-and-half years after the 2001 recession ended, the states -- both individually and collectively -- continued to face hard fiscal times. The states' problem, however, is not that merely that they were hit very hard by the recession of 2001 or that they have been recovering from it very slowly. The problem is deeper. As the national economy continues to grow, the states continue to face a serious financial mismatch between revenues and expenditures.
Indeed, given the realities of American federalism, state policymakers should prepare themselves to deal with tough fiscal times for the rest of the decade and maybe longer. Until citizens make a fundamental change in their political thinking -- either increasing the state taxes that they are willing to pay, or readjusting their expectations about the services they want state (and local) government to provide, or making some fundamental changes in intergovernmental responsibilities -- state policymakers should expect the tough fiscal times to continue for years to come.