Economic development efforts drive Texas budget

Unlike Texas, many states are experiencing adverse economic effects caused by the housing bubble explosion, most notably a sharp decline in sales tax revenues because sales of furniture, appliances and construction materials have dropped off significantly. Tax increases and high business and housing costs in revenue-poor states are actually slowing their economies by reducing demand. Residents of many of these states have been fleeing to states with more favorable tax and labor climates.

In general, shortfall states that are projecting even weaker revenues by 2009 have failed to address structural weaknesses in their budgets, said Elizabeth McNichol, co-author of the CBPP report.

"The problem is more on the revenue side than the spending side. Six years into the economic recovery from the last recession, state expenditures on average are still a smaller share of the economy than they were in 2001."