But several widespread problems emerged, especially "structural deficits" that left many states struggling to bring in enough taxes to provide the revenue that run government. The problem has been widely acknowledged by state leaders, who have complained that their tax systems are geared to a 1950s manufacturing economy, not a 21st-century service- and technology-centered one.

But broadening existing tax structures has proven difficult politically.

The report concluded that the healthy 1990s masked the problem, and the spending increases and tax cuts of those years left states less able to overcome the downturn when it came.

Also, many states have neglected maintenance of their infrastructure, along with the training and recruitment needed to keep their work force strong, as they've tried to keep their budgets balanced, the authors found.

Oklahoma budgeted no money for facilities maintenance last year, and California shifted funds from maintenance to its government-wide general fund for the past two years, the report found.

In more than half the states, one in five employees will retire in the next five years, with Tennessee expected to see 40 percent of its work force leave and Maine and Nebraska close to it. Efforts to resolve the problem are exacerbated by the push for smaller government.

Kettl said the report wasn't taking a stance about bigger government or smaller government. "What we're saying," he said, "is the government you have ought to work."