By Whitney Boyd - Cox News Service

WASHINGTON --

As the economy faces high energy costs and a likely recession stemming partly from housing market troubles, Georgia and many U.S. state governments have been forced to dip into reserves, curb tax cuts and boost spending at a slower pace, the study released by the National Governors Association found.

Raymond C. Scheppach, executive director of the National Governors Association, said that most states will survive the economic slow down, but even a slight recession in the nation's economy can force more than 20 states to make cuts to their current budget.

According to the report, in fiscal 2007, Georgia suffered a $40 million shortfall in state funds due to spending for the State Children's Health Insurance Program, state hospitals and a reduction of tobacco settlement funds. The state has found additional revenue in the amended budget to cover the shortfall.

Spending on Medicaid also accounted for almost 22 percent of all state spending in 2007 and is predicted to increase in 2008.

Unlike the federal government, which can run a deficit, states are forced to balance their own budgets. Even if the economy is facing deficits and tax revenues come in less than what the state has projected, the state must find other sources of revenue, use tax money or cut programs.

State spending is predicted to rise 4.7 percent in fiscal 2008, compared to the booming 9.3 percent states saw in 2007. State reserves will also witness a fall in 2008 compared to the last two years. The report shows that state balances are projected to fall by $16 billion in 2008.

Scheppach also noted that the housing market is also hurting state coffers as they lose tax revenue from big-ticket sales driven by real estate.

"People aren't moving into a larger house - plus they can't pull the home equity out any more because there isn't any," he said.

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