States don't expect recovery until 2012

States are facing the toughest fiscal situation since the Great Depression and don't expect to begin recovering until 2012, two associations said Thursday.

The National Governors Association and National Association of State Budget Officers said states expect to still face a combined shortfall of $127 billion in 2010 and 2011. That is on top of a shortfall of roughly $160 billion since 2009.

"Because states lag behind national recovery, they expect 2011 to be as bad as 2010, and states will not begin the path to recovery until 2012," said Raymond Scheppach, executive director of the governors association.

States cut spending by 7 percent, from $658 billion in 2009 to $613 billion this year. The associations said 44 states expect to spend less this year than in 2008.

The cut in spending comes amid plummeting tax revenue. States took in 12 percent less in tax revenue in 2010 than in 2008, forcing 40 states to make mid-year budget cuts.

The Obama administration's fiscal stimulus program has helped states support Medicaid and other services during the recession. States were able to spend $120 billion because of the recovery act, the associations said, but the money will run out by the end of the year.

"The loss of these funds combined with the anticipated slow recovery of state revenues is expected to result in the continuation of difficult state fiscal conditions for the next few years," the associations said in a report.