Five percent?? That is the number that some economists expect the U.S. GDP to grow this year. It would certainly be an impressive number when you figure that, according to The Center on Budget and Policy Priorities, state and local spending accounts for about one-eighth of GDP.
During legislative sessions in 2009, state legislatures cut $145.9 billion from their fiscal 2010 budgets. Despite these cuts, states still face a mid-year budget gap of $28.2 billion. (Stateline.org, 2/21/09)
How bad are things for the states?
Things are so bad in Illinois that as of mid-December, the Illinois State Board of Education has sent the state comptroller more than 18,000 vouchers totaling $757 million and that number is just a drop in the $4.5 billion bucket of I.O.Us the state has handed out. (Beacon News, 1/4/10)
Things are so bad in Maine that the new budget proposal submitted by its governor is based on the assumption that congress will pass another $200 billion in stimulus programs and provide direct aid for the state to fund its Medicaid program. Certainly other states must be hoping for the same as stimulus funds plugged about 30 to 40 percent of the budget gaps states were facing last year. (Stateline.org, 12/14/09; CNN,11/11/09)
Things are so bad in North Carolina that it has borrowed $1.4 billion from the federal government since February 2008 to fund unemployment insurance claims. During the last recession the state borrowed a total of $270 million. Twenty-three other states have borrowed from the treasury to fund claims and they will all have to begin repayment, with interest, in 2011. (Charlotte Observer, 12/1/09)
Things are so bad in Arizona that on November 19, the state borrowed $700 million from Bank of America, the first time since the Depression that the state needed to turn to an outside borrower. After less than two weeks, the money had all been allocated and the state had to borrow $73 million from its internal account to make a payment to the state’s schools. Arizona claims it will replenish the accounts as tax collections come in. (Arizona Republic, 12/2/09)
Tax collections are going to have to improve for the states to find their footing. The nominal and inflation adjusted figures indicate that the first three quarters of 2009 marked the largest decline in state tax collections since the Census Bureau began tracking the data in 1962. (Rockefeller Institute of Government, 1/10/10)
Together sales and income taxes make up roughly half of state and local tax revenue. With national unemployment still above 10 percent, states like Arizona are betting a lot on individuals increasing spending despite a difficult job market. Anyone betting on 5 percent GDP growth is betting that these states get healthy…quickly. Any takers?
Eric Zavolinsky
