Thursday, June 04, 2009

Future Watch: still less government services

Wall Street Journal Online
JUNE 3, 2009
States' Budget Woes Are Poised to Worsen

State budgets look bad now, but they are set to get worse.

The bulk of funds from the federal government's stimulus package will be allocated by 2011, but tax collections aren't likely to be enough to take their place -- even if the economy is recovering.

The drop in tax revenue is set to be deeper and last longer as collections have become more sensitive to business cycles in recent years. At the same time, states face growing health-care costs and the need to replenish pension programs funded by decimated investments. And some of the stimulus funds expand programs that will require state money to sustain them after the federal largesse runs out.

"There are so many issues that go way beyond the current downturn," said Scott Pattison, executive director of the National Association of State Budget Officers. "This is an awful time for states fiscally, but they're even more worried about 2011, 2012, 2013, 2014."

...With most governors busy stanching the current budget bleeding, only a few have taken steps to head off future problems...

...When today's federal assistance peters out, a number of state budget officers don't expect new tax revenue to replace it. As the recession grinds on, states are posting significant declines in revenue from their three major sources: sales, personal-income and corporate taxes...

...The best outcome they can imagine, some state officials say, is that the stimulus funding allows them to make spending cuts gradually: for example, by relying more on attrition and less on layoffs to cut payrolls. (Unlike the federal government, states generally are required to balance their budgets.)

That's sparking tough choices...

"This is not simply trimming around the edges," said the state's top budget officer, Dave Goetz. "This is entire programs."

And we need to be ready for it, class.

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