State Budgets Are Anti-Stimulus
Today is the end of the 2009 fiscal year, and many states are still scrambling to get budgets in place for the 2010 fiscal year.
It is not easy since when the economy turns south, so do tax revenues, and states are not allowed to run deficits or borrow for operating needs. Some states have managed to cut costs or raise taxes enough to close their deficits for the upcoming year. The only two states without a budget problem are Montana and North Dakota.
As shown in the table below (from http://www.cbpp.org/cms/index.cfm?fa=view&id=711), the total spending cuts or revenue increase needs to be $166 billion or 24% of the projected budget. To some extent states have used "rainy day funds" and the money from the Federal Stimulus bill to close some of the gap. Still the problem is very severe with 5 states (CA, AZ, NV, IL, NY) facing shortfalls of greater than 30%. California is in the worst shape with a gap of 58.2%.
| State | FY2010 pre-budget |
FY2010 mid-year gap |
FY2010 Total |
FY2010 Total % of Budget |
|||
| Alabama | $1.2 billion | 0 | $1.2 billion | 16.70% | |||
| Alaska | $1.3 billion | 0 | $1.3 billion | 30.00% | |||
| Arizona | $4.0 billion | 0 | $4.0 billion | 41.10% | |||
| Arkansas | $146 million | 0 | $146 million | 3.20% | |||
| California* | $34.2 billion | $19.5 billion | $53.7 billion | 58.20% | |||
| Colorado | $1.0 billion | $384 million | $1.4 billion | 18.60% | |||
| Connecticut | $4.1 billion | 0 | $4.1 billion | 23.20% | |||
| Delaware | $557 million | 0 | $557 million | 17.60% | |||
| District of Columbia | $650 million | $150 million | $800 million | 12.70% | |||
| Florida | $5.9 billion | 0 | $5.9 billion | 22.80% | |||
| Georgia | $3.1 billion | $750 million | $3.9 billion | 22.30% | |||
| Hawaii | $682 million | $297 million | $978 million | 19.10% | |||
| Idaho | $411 million | 0 | $411 million | 16.40% | |||
| Illinois | $9.2 billion | 0 | $9.2 billion | 33.00% | |||
| Indiana | $1.1 billion | 0 | $1.1 billion | 7.50% | |||
| Iowa | $779 million | 0 | $779 million | 13.20% | |||
| Kansas | $1.4 billion | Yes, DK size | $1.4 billion | 22.60% | |||
| Kentucky | 0 | $1.1 billion | $1.1 billion | 11.30% | |||
| Louisiana | $1.8 billion | 0 | $1.8 billion | 21.60% | |||
| Maine | $640 million | 0 | $640 million | 21.40% | |||
| Maryland | $1.9 billion | Yes, DK size | $1.9 billion | 13.60% | |||
| Massachusetts | $5.0 billion | 0 | $5.0 billion | 17.90% | |||
| Michigan | $2.4 billion | 0 | $2.4 billion | 12.00% | |||
| Minnesota | $3.2 billion | 0 | $3.2 billion | 21.00% | |||
| Mississippi | $480 million | 0 | $480 million | 9.60% | |||
| Missouri | $923 million | 0 | $923 million | 10.30% | |||
| Nebraska | $150 million | 0 | $150 million | 4.30% | |||
| Nevada | $1.2 billion | 0 | $1.2 billion | 37.80% | |||
| New Hampshire | $250 million | 0 | $250 million | 16.20% | |||
| New Jersey | $8.8 billion | 0 | $8.8 billion | 29.90% | |||
| New Mexico | $345 million | 0 | $345 million | 6.30% | |||
| New York | $17.9 billion | 0 | $17.9 billion | 32.30% | |||
| North Carolina | $4.6 billion | 0 | $4.6 billion | 21.90% | |||
| Ohio | $3.3 billion | 0 | $3.3 billion | 12.30% | |||
| Oklahoma | $600 million | 0 | $600 million | 10.50% | |||
| Oregon* | 0 | 0 | 0 | 0.00% | |||
| Pennsylvania | $4.8 billion | 0 | $4.8 billion | 18.00% | |||
| Rhode Island | $590 million | 0 | $590 million | 19.20% | |||
| South Carolina | $725 million | 0 | $725 million | 12.50% | |||
| South Dakota | $32 million | 0 | $32 million | 2.90% | |||
| Tennessee | $1.0 billion | 0 | $1.0 billion | 9.70% | |||
| Texas | $3.5 billion | 0 | $3.5 billion | 9.50% | |||
| Utah | $721 million | $279 million | $1.0 billion | 19.80% | |||
| Vermont | $278 million | 0 | $278 million | 24.80% | |||
| Virginia | $1.8 billion | Yes, DK size | $1.8 billion | 10.90% | |||
| Washington | $3.4 billion | $195 million | $3.6 billion | 23.30% | |||
| West Virginia | $200 million | 0 | $200 million | 5.30% | |||
| Wisconsin | $3.2 billion | 0 | $3.2 billion | 23.20% | |||
| Wyoming | 0 | $32 million | $32 million | 1.70% | |||
| Total | $143.2 billion | $22.7 billion | $165.9 billion | 24.40% | |||
This will lead to very drastic cuts in state budgets. Access to medical care by the poor will likely be one of the first things to be cut.
Education budgets will also probably be pared. This could be decreased spending on new textbooks, which would not be good news for publishers like McGraw-Hill (MHP - Analyst Report) and Scholastic (SCHL - Snapshot Report).
Another area that is likely to be hit is new equipment at the municipal level. For example, I would not expect Oshkosh (OSK - Snapshot Report) to have a very good year selling new fire engines and snow removal equipment to municipalities.
Layoffs of state and municipal workers will simply add to the already high and rising unemployment rate. In short, a big part of the federal stimulus spending is being offset by (legally mandated) anti-stimulus actions at the state level.
As the graph shows, state fiscal problems tend to persist well after the recession is officially over. Indeed the problem is usually worse in the second or third year since by then the "rainy day funds" have already been used up.
Following the last recession, states collectively had their worst year in 2004 with a shortfall of $80 billion (or less than half what they face for fiscal 2010), which was well after the recession officially ended. Thus 2011, and possibly even 2012, will be a very lean year at the state level as well.
