Thread: These 10 states may be closest to financial collapse

These 10 states may be closest to financial collapse

Matthew Scott
Nov 11th 2009 at 1:00PM

When California Treasurer Bill Lockyer sought a $7 billion federal loan guarantee from Treasury Secretary Timothy Geithner in May, it was a clear indication that states, and not just financial institutions, were struggling mightily to find firm fiscal footing in the face of the Great Recession.

As states continue to grapple with the current harsh economic conditions, the Pew Center on the States has compiled a list of the 10 that are closest to financial collapse, part of a report on the budgetary health of all 50 states. The report warns of potentially damaging consequences if states fail to take decisive measures to fix their money woes.

While California's economic struggles, such as issuing IOUs to state employees and business contractors, have been well documented, many more states are facing a combination of economic, money-management and political pressures that are driving them to the brink of collapse. The Pew report cites high home foreclosure rates, increasing joblessness, declining state revenues, poor money management, legal and political obstacles to balanced budgets and the size of budget gaps as the six factors that contribute to most of the problems.

The report points out that all states but two -- Montana and North Dakota -- faced budget shortfalls for fiscal year 2010, adding up to an estimated $162 billion in budget gaps. Tax collections in all states declined a record 11.7% from first quarter of 2008 to the first quarter of 2009, and unemployment continued to rise nationally, topping 10% this month.

The Terrible 10

By combining weighted scores for each state's rank in its six contributory factors, Pew created a list of the 10 that are in the highest degree of peril. They are: California, Arizona, Rhode Island, Michigan, Oregon, Nevada, Florida, New Jersey, Illinois and Wisconsin. Close behind those terrible 10 are Colorado, Georgia, Kentucky, New York and Hawaii.

The report also revealed four common problems that hurt the 10 worst states. Several of them are too dependent on a particular industry that has been devastated by the recession, such as gambling in Nevada and tourism in Florida. Many of the states, like California, New Jersey and Illinois, have a long history of borrowing to close budget gaps. Several have legal limitations that prevent them from making adjustments. For example, Oregon has a revenue cap that forces the state to deliver rebates to taxpayers in good times or bad. And most states just put off the tough decisions until it was too late.

Here's the worst-10 list in the order that Pew ranked each state, with highlights of what hurt each one:

California – Budget shortfall: 49.3%
"California topped all states for the magnitude of its budget shortfall in fiscal year 2010, both in dollars and in share -- in this case, nearly half -- of its general funds, which pay for most state operations."

Arizona – Budget shortfall: 41.1%
Like many states, "Arizona's lawmakers relied on one-time fixes to balance its budgets instead of making long-term changes," the report said. Lawmakers were still wrestling with a $1 billion gap in this year's budget in October.

Rhode Island – Budget shortfall: 19.2%
On top of its poor record of fiscal management, "Rhode Island constantly ranks near the top of states with the highest unemployment rates, and last year it had the highest home foreclosure rate in all of New England."

Michigan – Budget shortfall: 12.0%
"Two of the Big Three Detroit-based automakers went bankrupt in 2009, sending shockwaves through a state that is on track to lose a quarter of it jobs this decade."

Nevada – Budget shortfall: 37.8%
"Nevada's unique gaming-based economy is in jeopardy, as is its state budget that relies on gambling sales to provide 60% of its revenues."

Oregon Â*– Budget shortfall: 14.5%
"State revenues plummeted 19% between the first quarter of 2008 and the first quarter of 2009, a reflection of Oregon's heavy reliance on income taxes," the report said. Voters have rejected adding a sales tax nine times, thwarting attempts at creating a new source of state revenue.

Florida – Budget shortfall: 22.8%
"For the first time since World War II, Florida's population is shrinking. This is a disturbing revelation for a state that has built its economy -- and structured its budget -- on the assumption that throngs of new residents will move to its sunny shores each year."

New Jersey – Budget shortfall: 29.9%
"New Jersey is playing catch-up after years of fiscal mismanagement and a daunting structural imbalance between what it collects and what it spends."

Illinois – Budget shortfall: 47.3%
"Since the last recession earlier this decade, the state piled up huge backlogs of Medicaid bills and borrowed money to pay its pension obligations," the report said. The 2010 budget shortfall topped $13.2 billion, among the worst in the nation.

Wisconsin – Budget shortfall: 23.2%
"Wisconsin's history of budget shortfalls and pattern of borrowing frequently to cover operating expenses, among other measures, made it poorly positioned to weather the most recent severe economic downturn."

http://tinyurl.com/yc56mhl

Rhode Island – Budget shortfall: 19.2%
On top of its poor record of fiscal management, "Rhode Island constantly ranks near the top of states with the highest unemployment rates, and last year it had the highest home foreclosure rate in all of New England."

And yet it has legislators Kennedy, Langevin and Whitehouse who want amnesty and increased immigration.

Report: 10 states face looming budget disasters

By JUDY LIN, Associated Press Writer

Wednesday, November 11, 2009

(11-11) 18:21 PST Sacramento, Calif. (AP) --

In Arizona, the budget has grown so gloomy that lawmakers are considering mortgaging Capitol buildings. In Michigan, state officials dealing with the nation's highest unemployment rate are slashing spending on schools and health care.

Drastic financial remedies are no longer limited to California, where a historic budget crisis earlier this year grew so bad that state agencies issued IOUs to pay bills.

A study released Wednesday warned that at least nine other big states are also barreling toward economic disaster, raising the likelihood of higher taxes, more government layoffs and deep cuts in services.

The report by the Pew Center on the States found that Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin are also at grave risk, although Wisconsin officials disputed the findings. Double-digit budget gaps, rising unemployment, high foreclosure rates and built-in budget constraints are the key reasons.

"While California often takes the spotlight, other states are facing hardships just as daunting," said Susan Urahn, managing director of the Washington, D.C.-based center. "Decisions these states make as they try to navigate the recession will play a role in how quickly the entire nation recovers."

The analysis, "Beyond California: States in Fiscal Peril," urged lawmakers and governors in those states to take quick action to head off a wider catastrophe. The 10 states account for more than one-third of the nation's population and economic output, according to the report.

Historically, states have their worst tax revenue year soon after a national recession ends. At the same time, higher joblessness and underemployment mean more people need government-sponsored health care and social safety-net programs, further taxing state services.

California leads the most vulnerable states identified by the report, which describes it as having poor money-management practices. Since February, California has made nearly $60 billion in budget adjustments in the form of cuts to education and social service programs, temporary tax hikes, one-time gimmicks and stimulus spending, according to the Legislative Analyst's Office.

Many of those fixes are not expected to last. The state's temporary tax increases will begin to expire at the end of 2010, while federal stimulus spending will begin to run out a year after that.

Gov. Arnold Schwarzenegger estimates California will run a deficit of $12.4 billion to $14.4 billion when he releases his next spending plan in January. The governor warned that the toughest cuts are ahead.

"I think that we are not out of the woods yet," Schwarzenegger said this week.

At the same time, the Legislature is hamstrung by requirements that budget bills and tax increases be passed with a two-thirds majority, a mandate that the report labeled "a recipe for gridlock."

The Pew report was based on data available as of July 31 and scored all 50 states based on revenue changes, unemployment, foreclosures and budget requirements. It also gave them grades. California and Rhode Island scored worst with D-pluses, then New Jersey and Illinois with C-minuses.

In reviewing why some states are suffering more than others, Pew found that the 10 states tend to rely heavily on one type of industry, have a history of persistent budget shortfalls or face legal constraints making it extra difficult to implement major changes, such as tax increases.

Many require a supermajority vote for passing tax increases or budget bills.

Wisconsin officials issued a statement late Wednesday saying the Pew report was inaccurate. Wisconsin Department of Administration Secretary Michael Morgan said the state has balanced its budget by cutting spending and raising revenue. It projects a $270 million budget surplus for the period ending July 1, 2011, Morgan said in his statement.

Several state legislatures have been unable to enact long-term fixes. Instead, they asked voters or governors to make the call, or used accounting gimmicks to put off the hard choices until later.

For example:

_ Arizona lawmakers relied on one-time fixes to balance recent budgets as the state's home foreclosure rate surpassed California's and the nationwide average. Among the many ideas being explored by the state are a plan to mortgage state buildings, then rent the property until the state regains ownership at the end of the contract.

_ Michigan, where two of the Detroit Three automakers filed for bankruptcy protection this year, continues to offer tax incentives even as they take a toll on the state's pocketbook, leading to declining tax revenue. According to the Pew study, Michigan offered $6.3 billion more in total tax exemptions, credits and deductions than it actually collected in taxes in 2008.

_ Illinois, which has run deficits every year since 2001, is facing an $11.7 billion budget gap for its next fiscal year, beginning in July, according to the Center on Budget and Policy Priorities. Pew's Government Performance Project ranked Illinois behind only California and Rhode Island for its lack of fiscal management on paying medical bills and pension liabilities.

_ With Florida facing a shrinking population for the first time since World War II, Republican Gov. Charlie Crist and the GOP-controlled Legislature balanced a $5.9 billion shortfall with cuts, federal stimulus money and tax hikes, including a $1-a-pack tax increase on cigarettes. But the future remains uncertain.

"Florida continues to face the same challenges as last year, including a very austere budgetary environment," said Rep. David Rivera, a Miami Republican who chairs both of the Florida House's two appropriations councils.

___

Associated Press writers Bill Kaczor in Tallahassee, Fla., and Paul Davenport in Phoenix contributed to this report.

http://www.sfgate.com/cgi-bin/article.c ... 430S51.DTL

Pew Center on the States, www.pewcenteronthestates.org/

Report: 10 States Face Looming Budget Disasters

Wednesday, November 11, 2009 2:46 PM

SACRAMENTO, Calif. — A study released Wednesday warns that nine states are barreling toward an economic disaster similar to California's ongoing fiscal crisis that has been marked by IOUs and budget-busting deficits.

The budget woes could mean higher taxes, accelerated layoffs of government employees, more crowded classrooms and fewer services in the coming year for some of the nation's most populous states.

Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin join California as those most at risk of fiscal calamity, according to the report by the Pew Center on the States.

Double-digit budget gaps, rising unemployment, high home foreclosure rates and built-in budget constraints are the key reasons.

The analysis urged lawmakers and governors in those states to take quick action to head off a wider economic catastrophe. The 10 states account for more than one-third of America's population and economic output, according to the report.

"While California often takes the spotlight, other states are facing hardships just as daunting," said Susan Urahn, managing director of the Washington, D.C.-based center. "Decisions these states make as they try to navigate the recession will play a role in how quickly the entire nation recovers."

California leads the most vulnerable states identified by Pew, which describes it as having poor money-management practices. According to the Legislative Analyst's Office, California has made nearly $60 billion in budget adjustments — in the form of cuts to education and social service programs, temporary tax hikes, one-time gimmicks and stimulus spending — since February as tax revenues plunged.

Many of those fixes aren't expected to last. The state's temporary tax hikes will begin to expire at the end of 2010, while federal stimulus spending will begin to run out a year after that.

Gov. Arnold Schwarzenegger estimates California will likely run a deficit of between $12.4 billion and $14.4 billion when he releases his next spending plan in January. The top estimate amounts to 17 percent of the state's $84.6 billion general fund budget, the main account for day-to-day spending. General fund spending in California has dropped nearly $20 billion over the past two years.

The governor warned that the toughest cuts are ahead.

"I think that we are not out of the woods yet," Schwarzenegger said this week.

http://www.newsmax.com/us/state_budgets ... 84974.html

Rhode Island Faces $200 Million Deficit

Wednesday, November 11, 2009 2:11 PM

PROVIDENCE, R.I. -- Economic woes in Rhode Island could drive the state's budget deficit to nearly $200 million, a gap equivalent to about 6 percent of expected state income.

Budget officials for Gov. Don Carcieri and lawmakers predicted Tuesday that the state's income will drop about $130 million during the fiscal year ending in June.

Among the biggest drops are an 8 percent decline in the sales tax and a 5 percent drop in the personal income tax.

Besides dealing with falling income, the state began the year with a $62 million deficit from the previous year, further aggravating the current budget gap.

Carcieri, a Republican, said in a written statement that state leaders must avoid raising taxes to fix the shortfalls.

http://moneynews.newsmax.com/economy/rh ... 84958.html