U.S. state budgets battered by recession
With ever more people out of work, consumer spending has dried up, depriving local government of sales tax revenue. The continued housing slump has wiped out real estate transfer taxes, while declining corporate profits have eroded business tax revenue.
From Maine to California, the slump has drained coffers at the very time that the cost of providing jobless benefits and healthcare has risen, straining public finances.
Over the coming week, Reuters.com will publish a series on the problems facing states and cities. From Aurora, Illinois, Karen Pierog reports on the hardship created by the closure of a shelter for battered women, a victim of the crisis in U.S. social services.
Nick Carey visited the town of Pontiac, Michigan, and reports on the desolation wrought by the bankruptcy of General Motors. From San Francisco, Jim Christie and Peter Henderson report on the ticking time bomb created by California’s fiscal crisis as the state Treasurer prepares IOUs for suppliers.
Tom Ryan in New York and Andrew Stern in Chicago outline the burden that extended jobless benefits are putting on the funds that states use to pay the unemployed. From Miami, Michael Connor reports on how U.S. ports are being battered by the stark drop in trade volumes, a direct result of the collapse in American consumer demand and global trade.
Municipalities around the country are cutting services, laying off staff, furloughing others, scaling back pension entitlements and raising fees on everything from parking to soda bottles to plastic bags and cellphone ringtones.
As many as 46 U.S. states are facing fiscal 2010 budget deficits totaling at least $130 billion, according to the Center on Budget and Policy Priorities.
That’s up from 42 states with mid-year shortfalls of a combined $60 billion in the current fiscal year, according to the Washington think-tank.
Stimulus funds are a help and without them, the fiscal stress would be a lot worse. But the programs devised by the Obama administration are not sufficient to plug the gap, leaving governors and mayors with no choice but to cut spending and raise taxes — unpopular measures at any time but especially unwelcome as many families are struggling to make ends meet.
Because state revenue tends to lag economic activity, things will get worse before they get better, according to S&P Chief Economist David Wyss. Municipalities are typically the last to feel an economic recovery.
Mayors from around the country last month called for direct aid to cities arguing that they have been short-changed by the stimulus program money. Like many federal initiatives, the stimulus program makes states the primary conduit for funds, and urban centers feel they are disadvantaged compared to rural areas that have greater political clout.
“The toughest part is cutting back on programs and services that people really want in their communities, and having to explain to them why we can’t do certain things any more because we just don’t have the money,” said Philadelphia Mayor Michael Nutter.
Read more on our special coverage page, Economy: U.S. State Budgets