States, Cities Gutted Spending in 2011 Medicaid, state jobs, infrastructure hit By Matt Cantor, Newser User Posted Feb 13, 2012 2:13 PM CST 22 comments Comments States cut spending by record amounts over the last few months of 2011. (Shutterstock) (Newser) – The final three months of 2011 saw states, cities, and school districts making their biggest spending cuts in a decade, USA Today reports. Spending dropped 1.6% from the same period the year before, plummeting by $26 billion. The result: States are seeing their smallest shortfalls in years, and in some cases they're even seeing surpluses. The cuts' biggest targets were Medicaid; public-sector jobs, which were cut by 3.4% since August 2008; and infrastructure spending, which dropped 4% in 2010 and 2011. The data marks a reversal of a trend toward overall spending growth since the recession. Now, "the majority of states have a stable to positive outlook," says an analyst. States kept their expectations low, planning for a lower-than-forecast 1.9% boost in general fund revenue. What's more, "states and local governments did not have a recession, and certainly not the deep recession the private sector experienced," notes an expert. And with federal stimulus cash shrinking, sales tax has regained its position as the biggest source of state income.