If the economy is booming, then why are so many states struggling with budget issues? Stateline.org takes a look at this issue in State budgets tenuous heading into ’08

States awash in surpluses for the past two years are now treading water, with several desperately looking for lifelines to help them get out of budget trouble.

A slumping housing market and skimpier sales tax collections are busting budgets from California to Florida at a time when national job growth is sluggish and consumer confidence is at a nearly two-year low.

“The forecast is looking pretty grim,” Sujit M. CanagaRetna, a state tax expert for the Council of State Governments, said. “The implications for states are serious.”

Nasty budget brawls broke out this year in California, Georgia, Illinois and Rhode Island as states’ financial picture appears in transition. (Wisconsin is the only state in the country without a budget plan yet for the new current fiscal year, which for all but four states began July 1.)

The stalled housing market is pinching states across the board, but more severely for states such as Arizona, California, Nevada and Florida that rely heavily on real estate taxes. A drop in home sales and prices mean states take a smaller cut — both in real-estate-related taxes and sales tax as most people who buy homes also purchase new appliances and carpeting and spend big money on home-improvements. Florida, for example, is particularly dependent on sales tax revenue since it does not have a state income tax.

The latest figures show that the growth in sales tax for the second quarter was one of the lowest in four years at 6.1 percent and “matched rates last seen as the nation was emerging from the last recession,” according to the Nelson A. Rockefeller Institute of Government’s state revenue report.

State by State Recap

Georgia
October 12, 2007
Housing slump affects sales tax collections

Georgia’s tax collections fell slightly last month, following a trend across the country where the housing slump has begun to affect state budgets and sparked talk of spending cuts for education and health care.

Collections in Georgia were down $2.3 million in September, compared to the same period in 2006. Sales taxes dropped 10.6 percent. For the first quarter of the fiscal year, which began July 1, overall collections are up 5 percent, or $199 million. The state needs a growth rate of 5 percent or more for the rest of fiscal 2008 to meet its $20.2 billion budget.

Income tax collections rose 5.1 percent last month. However, sales tax collections – which are tied to consumer spending – faltered, dropping $47.6 million over September 2006.

States across the country, from California to Florida, are facing budget problems for the first time in years because of the slumping housing market and slow sales tax collections.

Florida
August 2, 2007
$1.5-billion shortfall seen in state budget

State government has its worst fiscal outlook since the aftermath of 9/11.
As a depressed housing market saps Florida’s economy, revenue experts Wednesday adjusted the state budget shortfall to $1.5-billion, the worst fiscal outlook since 2001.

That means deep cuts in state services and programs will be needed this fall to assure that expenses match the shrinking revenue pool.

More ominously, the revised picture of the state’s finances for the next four years is so bleak it may force future cuts in each of those years, casting a fiscal shadow over Gov. Charlie Crist’s term.

October 12, 2007
New special session targets tax-cut amendment

Florida lawmakers will start their fourth special session of the year today, just minutes after completing their third.

The purpose of the new special session will be to write a new constitutional amendment that would cut property taxes imposed by local governments.

October 12, 2007
Move by Crist smoothes way for $11 billion tax-cut bundle

Gov. Charlie Crist dropped plans Thursday to impose new spending limits on city and county governments as part of a proposed $11 billion package of property-tax cuts.

The cap was designed to limit increases in local government spending to the rate of inflation. But Crist feared that opposition by municipalities and Democrats could doom the entire package, which the Legislature is now expected to pass next week.

“Local government is not our enemy — we have to remember that,” said Senate Minority Leader Steve Geller, D-Cooper City. “The governor told me, ‘Steve, I assure you that [the revenue cap] is not in the plan.’ “

“There’s nothing wrong with that plan, except that it doesn’t cut taxes,” Rubio said. “It doesn’t go far enough. . . . The only thing it doesn’t do is the important thing, and that is lower taxes to the level that people need it to be.”

Missouri
Oct 9 2007
Think-Tank Sees State Budget Shortfall Ahead

Economist Tom Kruckemeyer says state revenue growth has slowed and tax cuts will reduce money coming into the state treasury.

Virginia
October 1, 2007
Governor Kaine Announces $300 Million in spending Reductions and Savings

5% cuts address about half of $641 million revenue shortfall
Efficiency, savings, Stabilization Fund to meet remaining shortfall

Governor Timothy M. Kaine today announced state agency savings and spending reductions of $300 million and additional steps he will take to address a $641 million revenue shortfall in the current budget period, which ends on June 30, 2008.

“Since last May, when we detected a significant slow down in revenues because of the weakening housing market, our administration has closely monitored and reduced discretionary spending across state government,” Governor Kaine said. “In August, it became clear that more belt-tightening would be required to balance the budget.”

October 12, 2007
Poll: most Virginians favor budget cuts

Most Virginians say the state’s cash-strapped budget should be balanced by cutting spending — not raising taxes.

But Christopher Newport University’s Virginia Poll also shows that voters’ views on erasing the $641 million shortfall are not clear-cut.

The survey by CNU’s Center for Public Policy was conducted Sept. 27-Oct. 1 — as the campaign for control of the General Assembly enters its final month and the state’s fiscal woes emerge as a defining issue.

Arizona
Sept 28, 2007
State’s revenue tally falls short again

The Legislature’s budget staff on Friday reported “disappointing” levels of state tax collections in August, reinforcing fiscal gloominess that started with a smaller-than-expected surplus from the last fiscal year.

The Joint Legislative Budget Committee staff said August collections were $64.5 million, or 8.6 percent, below the expectations, and down 2.7. percent from August 2006.

Lower-than-expected individual income tax collections accounted for two-thirds of the gap between actual and projected August revenues.

September 28, 2007
Budget shortfall may choke off or limit raises for state workers

First belt-tightening on the job at most state agencies. Now the prospect of no pay raise next year, or at best only a small one, as the state’s budget shortfall starts to hit home for state employees.

Thursday’s revelations came in a report by the state Department of Administration, which normally provides a pay-raise recommendation in September for lawmakers to consider while drafting the next year’s state budget in the spring.

But the department is holding off on pay-raise proposals for now, citing “the realities of the current economic situation of the state’s budget.”

Gov. Janet Napolitano last week announced that tax collections slumping below anticipated levels would produce a projected $600 million shortfall in the current $10.6 billion budget — a shortfall she has already developed plans to resolve.

Washington
October 4, 2007
“Heartburn” over roads: State fears $1.5B shortfall

Washington could fall about $1.5 billion short of what’s needed to pay for state transportation projects over the next 16 years because drivers are expected to buy less gasoline than the state had forecast.

New state projections indicate rising gas prices will temper demand for fuel, and that in turn means less revenue from state and federal gas taxes. The trend is not expected to improve over time. Ultimately, it could lead the state to tap new sources of money, such as tolls, to help pay for transportation needs, or force a choice between maintaining existing roads and building new ones.

“This really does create a problem. This gives me heartburn,” said state Sen. Mary Margaret Haugen, chairwoman of the Senate Transportation Committee. “I think this will have a big impact on our budget.”

Maryland
September 15, 2007
Low Sales Tax Receipts Worry State Assembly

Sluggish sales tax collections are exacerbating Maryland’s budget woes, lawmakers were told yesterday, rekindling debate over whether a special session of the General Assembly is necessary.

In a letter to Gov. Martin O’Malley (D) and legislative leaders, Comptroller Peter Franchot (D) reported that revenue projections for the current fiscal year, which ends next June, had been revised downward by $132.5 million, mostly due to slower-than-expected sales tax collections related to a depressed housing market.

If the trend continues, it will add to a projected shortfall of close to $1.5 billion in the 2009 fiscal year, which the Democratic governor and leading lawmakers plan to close through a combination of tax increases and spending cuts — and possibly with revenue from the legalization of slot-machine gambling.

September 21, 2007
Rise in sales tax is sought

Sitting around a middle-class family’s dining room table for the second day in a row, O’Malley acknowledged yesterday that increasing the sales tax from 5 percent to 6 percent would run counter to his goal of making Maryland’s tax system more progressive. But the Democratic governor said the move is necessary to balance the budget and that he designed his overall tax package to minimize the impact on working families

Nevada
April 27, 2007
State shortfall grim and grimmer

The state is expected to receive tens of millions of dollars less in taxes and fees than predicted over the next two years, leaving legislators and Gibbons administration officials facing the politically unpalatable prospect of budget cuts.

State officials Thursday got a glimpse of the gloomy news expected next week when an advisory committee to the forum predicted that tax collections from minor tax sources such as the liquor tax and marriage, divorce and commercial filing fees are expected to be $21 million lower than predicted in November.

“We will be in worse shape than we are now,” state Budget Director Andrew Clinger said after the advisory committee meeting.

Assemblyman Morse Arberry, chairman of the Ways and Means Committee, the panel that puts together the state budget, painted an even bleaker picture.

“We’re going to be in the toilet,” said Arberry, D-Las Vegas.
It already has been predicted that sales tax collections for school districts will be $109 million lower over the next two years than originally expected. By law, the state must make up that shortfall.

Michigan
Sales tax expansion has little effect on prices overall

The state passed a sales tax expansion on some services Monday morning in an effort to reduce Michigan’s $1.75 billion budget shortfall.

“A lot of other states have (taxed services) and we didn’t have a choice,” said Michelle Scott, a no-preference freshman. “We’ve got to get the money from somewhere, but they could have done more cut backs in other areas.”

October 11, 2007
10 Michigan legislators to face recall efforts

The campaign to punish state lawmakers who backed all or part of last week’s $1.5 billion sales and income tax increase formally began Thursday with the filing of a petition seeking to recall state Rep. Steve Bieda, D-Warren.

Bieda was the first of 10 legislators – four other Democrats and five Republicans – targeted by the main anti-tax group backing the recalls.

Minutes after the recall against him was launched Thursday afternoon, Bieda said he wasn’t surprised and remained confident that Warren voters will realize that supporting the tax hikes “was not a crazy decision…given the alternatives.”

California
Health care plan called ‘gimmick’

Gov. Arnold Schwarzenegger’s health care plan will not make it out of the Legislature, according to a key Democratic lawmaker who dismissed as a “gimmick” the governor’s proposal to use the state lottery to help cover the 6.7 million Californians without insurance.

De La Torre derided as “a gimmick” the governor’s proposal to lease the lottery to a management company and use some of the proceeds to help expand health care. “Taking money that now goes to education and using it for health care would be like robbing Peter to pay Paul,” De La Torre said.

Under the governor’s proposal, the state would replace money from the lottery that now goes to education with funds from the state’s general fund.

Connecticut
October 12, 2007
Rell Wants Millions In Emergency Funds

Trying to avoid a funding crisis, Gov. M. Jodi Rell called Thursday for emergency legislation to send $140 million to cash-strapped cities and towns in the middle of school construction projects.

“The state’s obligation to these cities and towns is estimated at $140 million through the end of October,” Rell said Thursday in a two-page letter to the top six legislative leaders. “Real people – the employees who performed the work over the summer and the owners of the construction companies – are depending on timely reimbursement from the state to make ends meet and support their families. Our obligation is at least as much to them as it is to the affected cities and towns.”

Illinois
October 11, 2007
‘Devastating’ fare hikes, service cuts in 2008 Pace budget

Cash-strapped suburban bus system Pace passed a 2008 budget with what it calls “devastating” fare increases and service cuts, which could include eliminating all service after 7 p.m.

The cuts and fare increases are needed to close a $33-million shortfall in the agency’s suburban service funding and a $17-million shortfall in paratransit funding for the disabled, Arlington Heights-based Pace said in a statement. The region’s transit agencies have repeatedly warned of what they’ve often called “drastic” service cuts and fare increases next year, absent new state funding.

Metra and the Chicago Transit Authority also face budget shortfalls that could result in service cuts and fare increases next year. CTA President Ron Huberman has warned that the budget he’s expected to announce Friday will impose similarly draconian measures.

The Regional Transportation Authority, which provides financial oversight for the three transit agencies, has for months advocated a plan it says would provide an additional $435 million a year in transit funding. But progress on the plan in Springfield has been scant, despite public support from House Speaker Michael Madigan. The additional funding would come from higher sales taxes in the six-county Northeastern Illinois region and higher real estate transfer taxes in Chicago. Gov. Rod Blagojevich has repeatedly vowed to veto any sales tax increase.

South Carolina
October 12, 2007
$430M deficit looming for SC

Gov. Mark Sanford said Friday he hopes projections of a $430 million budget deficit next year causes legislators to curb spending.

“We’ve said from day one that during good times, we have to restrain spending to keep the state from being hit so hard when things slow down, because good times don’t last forever,” the Republican governor said in a statement that criticizes the growth of government over the past few years.

His comments came a day after the state Board of Economic Advisors said an economic downturn combined with extra spending and tax cuts could leave South Carolina with a $430 million budget deficit next year.

Estimates released at the group’s meeting Thursday show state revenues during the first three months of the budget year are already $29 million behind the amount needed to pay for all the items in the current budget.

And unless things improve, South Carolina could end up collecting less money next year than it did last year, something that has happened only twice in the past 52 years, chief economist Bill Gillespie said.

Two Financial Wizards: Crist and Schwarzenegger

In California, Schwarzenegger has cooked up a scheme that proposes to use lottery proceeds to expand health care. Given that lottery proceeds now fund education, the governor’s proposal would replace money from the lottery that now goes to education with funds from the state’s general fund. Schwarzenegger did not say what would be used to fund the shortfall in the state’s general fund.

With that, let’s turn our attention to Florida. Florida has no state income tax so it tend to rely heavily on property taxes. In a property tax revolt, governor Crist is expected to sign an $11 billion property tax cut bundle. One might think there would be spending cuts needed to offset those tax cuts, but Crist dropped plans to impose new spending limits on city and county governments. Apparently local governments are free to keep spending even if property tax revenue drops.

“We’ve got to kick-start this economy,” Crist said, adding the plan will “put money in people’s pockets.”

Like Schwarzenegger, Crist did not explain where local governments are going to get their money from. If fees rise to offset falling property taxes (which they must do if services are to be maintained), how is any money going into consumers’ pockets?

In Michigan, voters have had enough. An election recall effort is now underway for those who voted for the latest tax increase. And in Chicago, Mayor Daley is raising taxes. For more on enormous tax hikes in Michigan and Chicago please see Only One Choice – Raise Taxes. At the national level, the Mother Of All Tax Reforms is waiting on deck.

Mike Shedlock / Mish/