New York Times Examines Effect of Economic Downturn on State Budgets
States are "bracing for another difficult fiscal year" as they face "high inflation, dwindling tax revenues and a national economic downturn," the New York Times reports. As a result of the revenue declines, a number of state legislatures are "embroiled in pitched budget battles" that have put community and social service programs "in the crosshairs," according to the Times.
State tax revenues in the first quarter of 2008, after adjusting for inflation and tax reductions, declined by 5.3% compared with the same period in 2007, according to a state revenue analysis to be released Tuesday by the Nelson A. Rockefeller Institute of Government. According to the analysis, it will be the third consecutive quarter with a decline in total adjusted tax revenue and the lowest first-quarter revenues since early 2003. The Times reports, "Unlike other economic downturns, when states were hurt by faltering corporate and personal income tax revenue, problems this time appear to be led by declines in sales taxes, prompted in large part by the issues with the housing market." In addition, many states "continued to be constrained by high Medicaid costs, even as they sought to increase access to health insurance," the Times reports.
Don Boyd, a senior fellow in the institute's fiscal studies program, said, "There are signs that the economic weakness is very widespread," adding, "Between this past May and three months prior, a lot more states were declining, and we have not caught up with them in the data yet." Boyd said, "Many more states are having outright declines in their economies, and that is presumably a harbinger of budget problems" (Steinhauer, New York Times, 7/1).
The report is available online (.pdf).
