A Debt (and I Don’t Mean one of Gratitude)

In economics/money, local news, U.S government on January 31, 2009 by Editor Z

There has been ample attention paid to the financial crisis at the federal level, the astronomical and uncalled for bonuses of CEOs as their companies are sinking, and many other economic indicators. But at the state level many budgets are also tightening, with at least 42 states plus the District of Columbia and soon three other states having a wide disparity between the amount of money they are spending in their budgets and the amount of money they have, as state revenues dry up. The state of California has perhaps the widest chasm with a $13.7 billion shortfall.

This from the Center on Budget and Policy Priorities:

States are facing a great fiscal crisis. At least 46 states faced or are facing shortfalls in their budgets for this and/or next year, and severe fiscal problems are highly likely to continue into the following year as well. Combined budget gaps for the remainder of this fiscal year and state fiscal years 2010 and 2011 are estimated to total more than $350 billion.

States are currently at the mid-point of fiscal year 2009 — which started July 1 in most states — and are in the process of preparing their budgets for the next year. Over half the states had already cut spending, used reserves, or raised revenues in order to adopt a balanced budget for the current fiscal year — which started July 1 in most states. Now, their budgets have fallen out of balance again. New gaps of $46 billion (over 9% of state budgets) have opened up in the budgets of at least 42 states plus the District of Columbia. These budget gaps are in addition to the $48 billion shortfalls that these and other states faced as they adopted their budgets for the current fiscal year, bringing total gaps for the year to over 14 percent of budgets.

And at least the near future is appearing sobering as well.

This recession is more severe — deeper and longer — than the last recession, and thus state fiscal problems are likely to be worse. Unemployment, which peaked after the last recession at 6.3 percent, has already hit 7.2 percent, and many economists expect it to rise to 9 percent or higher, which will reduce state income taxes and increase demand for Medicaid and other services. With consumers’ reduced access to home equity loans and other sources of credit, sales taxes are also likely to fall more steeply than they did in the last recession. These factors suggest that state budget gaps will be significantly larger than in the last recession. Based on past experience and the depth of this recession, it appears likely that all but a handful of states will face shortfalls in fiscal year 2010 and these deficits will end up totaling about $145 billion. If, as is widely expected, the economy does not begin to significantly recover until the end of calendar year 2009, state deficits are likely to be even larger in state fiscal year 2011 (which
begins in July 2010 in most states).The deficits over the next two-and-a-half years are likely to be in the $350 billion to $370 billion range.



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