Utah’s estimated $850 million budget shortfall is hardly in the same league as other states like California. Stateline.org looks at some of the “nightmare scenarios” the could be confronting states if the gloomy budget picture doesn’t begin to turn around.
The 2011 budget picture could be just like 2010, but much much worse.
Bankruptcy, at least the scenario where a judge would take control of a state’s finances, is off the table. Bond defaults, the cardinal sin of public finance, seem highly unlikely for states. Another federal bail-out is plausible. Some state governments may even be fundamentally overhauled. But the worst for most states will sound familiar: service cuts, tax hikes, IOUs, layoffs, furloughs and political gridlock.
Bond defaults by states have happened before when Arkansas defaulted in 1933 during the Great Depression.
The state simply couldn’t keep up with its bills. In 1933, Arkansas defaulted on its bonds — the only state to do so during the Great Depression — and its state government essentially functioned on federal money for two years. It started digging itself out only when it passed a sales tax, and even then, the state had to stop building roads for 16 years.
Arkansas and seven other states also missed bond payments in the 1840’s.
Stateline reports that the most likely outcome will be more federal stimulus money to help keep states afloat if the budget doesn’t improve next year.