States are in the midst of the worst fiscal budget crises since the Great Depression. Over the last two years, well over half the states have experienced substantial budget deficits. In 1991 alone, 31 states faced a cumulative deficit of $31 billion.[2]

California, in particular, has experienced staggering deficits for three successive years. The $11 billion deficit in fiscal year 1992 follows the previous year's $14.3 billion spending gap. Many states in the Northeast are little better off. Connecticut, Massachusetts, New Jersey, and New York have all recently experienced major fiscal problems. Also in deep trouble are Illinois and Florida.

Over half the states have structural budget problems that will persist well after the recession is over, according to Ronald Snell, fiscal program director of the National Conference of State Legislatures.[3] Many states in the 1990s will be making a fundamental overhauling of state government: all aspects of state government will have to be reexamined, including what services should or should not be provided directly by state governments.

Against this background, the buzzword for state and local governments in the 1990s is "rightsizing," or restructuring and reevaluating the nature, size, and mission of state and local governments. Rightsizing means developing a long-range plan for making government leaner, more efficient, and more effective. For instance, the private sector can provide some services entirely, without direct government participation. For other government services and functions, the government may continue its role as financier but let the private sector deliver the service. Some government infrastructure can be sold off to the private sector. These concepts-all forms of privatization-are important elements of any state rightsizing program.