Most states came out of the COVID-19 pandemic in very strong fiscal condition. But with the American Rescue Plan funding now largely spent and future economic growth rates in doubt, fiscal challenges are returning, especially for states with high marginal income tax rates. Volatile capital gains revenue and out- migration to lower- tax states have clouded the fiscal prospects for California and New York especially. With revenue growth flagging, now is a good time for states to look for budgetary savings. In this study, I find limited evidence that greater program spending correlates with better social outcomes, so state governments should be able to make extensive spending cuts without jeopardizing the quality of core services. Opportunities for cost savings can be found in higher education, and, to a lesser extent, in K-12 education, where merging underutilized colleges and schools can lower administrative costs while freeing up valuable real estate.
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- United States of America
