Goodman points out that while tax revenue is rebounding over the past three quarters, it is from such a diminished base that it will take several years to return to pre-Great Recession levels. See the graph below from the Nelson A. Rockefeller Institute of Government:
Goodman notes that, "in the third quarter of 2010, overall state revenues were down 7 percent compared to two years earlier. That drop has come at a time when the slow economy is putting increasing demands on safety-net services that states administer."
Over the last two years state budgets were buffered by stimulus funds totaling roughly $165 billion, but stimulus funds have expired and their renewal appears unlikely. The National Conference of State Legislatures also calculated budget shortfalls of $26.7 billion in FY 2011 and a cumulative gap of $82.1 billion by FY 2012.
All in all, the next few years appear daunting for state policymakers. Fiscal crisis forces public officials to evaluate both what services to provide, and how to provide them. Some states have leveraged privatization and public-private partnerships to maintain public service delivery, and ameliorate the pain of spending cuts.
For some recent coverage of state spending cuts, see my colleague Adam Summers' post on California Governor Jerry Brown's proposed 2011 budget, and my series of posts on New Jersey Governor Chris Christie's cuts here, here and here.