Utah faces enormous challenges in closing a projected $721 million gap in the 2010 state budget. The state is likely to suffer less than most others, thanks to a commendable record of fiscal responsibility, but there is no doubt that painful measures will be required to meet the state's obligation to balance its annual budget. Fortunately, both the governor and the Legislature have shown courage and leadership in tackling the state's budget crisis head-on.

The dilemma that our elected officials face should not be underestimated. Inevitably during a recession, the demand for state services expands just when state revenues from income and sales taxes are contracting. To make matters worse, reliance on steep state budget cuts will actually exacerbate the economic downturn and compound the struggles of Utah's families to make ends meet.

To counteract these problems, many economists, including conservatives like Harvard University's Martin Feldstein and Desmond Lachman of the American Enterprise Institute, have suggested that government spending should be increased now, rather than decreased. Continued spending -- whether by households, businesses or government--keeps people employed and able to spend their money. This, in turn, encourages businesses to invest in serving consumer demand and allows them to expand their labor force.

Utah's lawmakers will be aided in this sense by the Federal Recovery and Reinvestment Act of 2009. This bill is currently moving through Congress and will be signed by the President before Utah's Legislature finalizes the 2010 budget. Estimates based on the bill that passed the U.S. House of Representatives suggest that this legislation will have a significant impact on Utah's 2009 and 2010 budgets, amounting to around 10 percent of the size of the two budgets combined. This one-time cash injection will help shorten the duration of the recession and minimize its impact on the most vulnerable residents until Utah's own revenue sources rebound.

Lawmakers can build on this new federal spending by fully funding all state programs that are matched by federal resources. These programs bring substantial new money into Utah, which contributes to local job creation, economic activity, personal income and state tax revenue. Indeed, almost every dollar of state and local government spending on transfer payments to vulnerable Utahns, as well as for the salaries of public servants who provide vital services to our communities, enters the local economy right away. This generates exactly the kind of economic impact that the recession has constrained.

Finally, the state should engage in ongoing and comprehensive review of the adequacy of all of its potential revenue sources. Policy makers already are discussing the use of additional bonding and making greater use of the Budget Reserve ("Rainy Day Fund") and Education Budget Reserve Funds. In today's volatile economic environment, it also makes sense to consider whether and how fees could be raised for different types of state services. In addition, the myriad tax exemptions that the state granted to companies in the past as tools for economic development also should be closely scrutinized for evidence of cost-effectiveness.

The point of this discussion is to remind our state leaders that balanced fiscal management includes attention not just to expenditures, but also to revenues.

Allison Rowland is budget and research director at Voices for Utah Children, a nonprofit, nonpartisan research and advocacy organization.