U.S. state budgets battered by recession

June 26, 2009

Eighteen months into the worst recession in decades, and the pain of the downturn is reaching into nearly every U.S. state, city and municipality.

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

5 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

I fear we’re heading for a second downturn, even with huge stimulus packages I still see dropping consumer spending in many countries. This is not a good sign.

What brings us back from depressions and recessions is ‘consumer’ spending. Since most manufacturing jobs—the jobs wherein something is actually produced—have been exported, the ‘consumer’ spending is going to be very low. No amount of Wall-Street conniving will overcome the need for decent-paying jobs, and the production of real goods.

Why does the second largest state in the nation, Texas, have a surplus? What has Texas done or not done in recent years compared to California? Ciara Linnane, you should devote an article to a comparison of the two states.

Posted by Larry | Report as abusive

Well the Fed and the offshore bankers all should be sued.
The trillions stolen given back. The trillions spent on homeland security(martial law)should be given back to the people. The takeover of America by these criminals is what needs to be addressed. Is any oone taking legal actions against the 13 Families behind this crisis?
Also state governments should make sure the money they have is really getting to where it needs to be not lost in the government bureacracy I am sure every state could save 100′s of billions in that alone.
Take action America, take actions you senators take action you people now. Reclaim America your rights your freedom the constitution and sue the ones who have destroyed it. You know who they are.

Why should some people be complainig so much about the crisis? It has only deprived them of things they don’t need in the first place!Isn’t it outrageous,the way we are spending and not thinking about the consequences? We have become a bit too spoilt, even here in Bulgaria, and I can only imagine what it might be in the States.
The crisis will be over and then…

Posted by aniBG | Report as abusive