Tide of state budget woes coming in with the economic storm
By Tom Baxter
Southern Political Report
October 9, 2008 — “The damage is just beginning.” That’s the ominous headline over the Rockefeller Institute of Government’s latest State Budget Report. The quarterly report paints a dismal picture of state government finances across the country in the wake of the upheavals on Wall Street, Main Street and the Global Highway. “The last fiscal crisis for states, which occurred in the middle of a mild recession, was dubbed a perfect storm. This could be more perfect,” analysts Donald J. Boyd and Lucy Dadayan write. While state tax revenues don’t yet appear to be so bad, they write, “below the surface, great trouble is brewing,” with tell-tale signs that revenue problems will develop relatively quickly in state capitols across the county. The Southeast had the steepest decline in sales tax revenues in the country: 4.7 percent since the last quarter. Georgia saw the highest drop, a sharp 8.3 percent. The story isn’t much better with respect to business and personal income taxes and gasoline taxes, which have taken a double hit from the slowing economy and the high price of gas. The only Southern states where the economy didn’t decline in August, according to an economic model maintained by the Federal Reserve Bank of Philadelphia, were Virginia, Louisiana and Texas. Changes in the state’s fiscal structure could make the coming budget crises much worse than those that occurred in the last recession, said Sugit M. ConagaRetna, senior fiscal analyst for the Southern Legislative Conference. Because taxes have remained “politically toxic,” he said, they have increasingly come to rely over the past decade on borrowed money to keep the wheels of government running. In 1998, states borrowed $200 billion which was paid back with tax money. By 2007, ConagaRetna said, that figure was $400 billion. California Gov. Arnold Schwarzenegger’s letter to Treasury Secretary Henry Paulson asking for an emergency $7 billion loan is expected to be just the first request from a beleaguered state, as the liquidity crunch continues to grind down into the economy. The one bright spot for states like those in the South which depend heavily on exports was the depreciation of the dollar, which made American products more competitive around the globe. But with the economic crisis spreading around the globe, ConagaRetna said, those markets can’t be depended on either. He predicted the economy wouldn’t begin to recover in the region until the latter part of ’09 -- if then. “There are so many variables, it’s mind-boggling,” the analyst said. All this spells some difficult legislative sessions next year, and an impact on political races stretching well into the next decade. |
