In fiscal year (FY) 2011, it was evident that states had emerged from the Great Recession and were beginning to put their fiscal houses back in order. Two significant risks remained: the loss of federal fiscal assistance in FY 2012 and a sputtering economic recovery. As FY 2012 progressed, those two risks proved formidable, as states saw some slippage in their fiscal positions. The question now is whether FY 2012 was a blip in states’ recovery or a transition into another period of fiscal distress.