State Governments Battered By Slowing Economy

Posted In: Budget Deficit, Economy, Housing, Recession, State Government, Surveys, Taxes

Earlier today, Bloomberg’s William Selway reported that state governments are projecting a $26 billion shortfall in the next budget year as the slowing economy erodes tax receipts, according to a national survey. The National Conference of State Legislatures study found:

With a few exceptions, state finances are deteriorating, in some cases considerably…

If the national economy continues to struggle and indeed falls into recession, the state fiscal situation will worsen.

While economists argue over whether or not the U.S. economy is in a recession, the group said:

Whether or not the national economy is in recession — a subject of ongoing debate — is almost beside the point for some states because their fiscal situations have declined so much that they appear to be in recession.

According to the survey, deficits are forecast in 23 states for the 2009 budget year. 16 states, including California and Florida, were forced to deal with shortfalls of $11.7 billion that appeared after their spending plans were already set. 33 states say they are concerned about the outlook for the coming year. Not surprisingly, states that benefited most from the housing boom are now seeing the most pain. The widest deficits for next year, measured as a percentage of the budget, are in Arizona, Nevada, California, Alabama, and Florida.

And how do the states plan to deal with the budget shortfalls? Selway wrote:

At least 16 states will respond to their shortfalls by cutting back spending, according to the report. At least eight, including California, are considering moves to raise taxes or fees. Massachusetts is considering a $1 per pack increase in the cigarette tax to raise $175 million, the report said. New York lawmakers balanced next year’s budget in part with a $1.25 per pack cigarette tax boost.

Others are looking at selling assets or using bonds sales to pay for projects. Illinois may sell its lottery, while Maine is looking at selling surplus land. Nevada is considering using bonds, instead of general fund money, for capital works.