The sad shape of the economy is proven by the shortfall of tax receipts of several states. The following article from Columbus Ohio should be a warning that any Federal Stimulus package could be inadequate.
Like Ohio, many states are awash in red ink
Sunday, October 28, 2001
Alan Johnson
Dispatch Statehouse Reporter
If misery loves company, Ohioans can take cold comfort from the crowd of states bleeding red ink as the weakening national economy squeezes budgets from Maine to Washington state.
"Economies from coast to coast are now in recession, characterized by falling jobs, profits and retail sales that will likely last into next year,'' a study released Friday by the National Governors Association says.
"In addition to increasing demands for more government spending in response to the weakening economy, state and local tax-revenue growth is slowing sharply.''
The plunging revenue in Ohio has prompted plans to close prisons and, perhaps, a mental hospital and to lay off hundreds of employees -- all to help make up a $1.5 billion budget shortage. In addition, the state might need $2.5 billion for education during the next two years.
Yet, the situation could be worse: The study includes Ohio among the eight states whose tax revenue overall "will hold up relatively well this fiscal year.''
Many states have found themselves in trouble:
New York, where terrorists struck Sept. 11, is suffering the most, with an estimated budget deficit ranging from $3 billion to $9 billion. The federal government will cover some of that, but the state might lay off as many as 5,000 workers.
Florida has a $1.5 billion deficit. Gov. Jeb Bush is planning a special legislative session to deal with it.
Connecticut is $300 million short in a $13 billion budget after seven consecutive years of surpluses.
Tennessee, after shifting all of its $560 million tobacco settlement to the budget, remains $275 million in the red.
A survey by stateline.org, a state policy and research organization, shows that 40 of the 50 states face serious budget problems, including Ohio and several others with deficits topping $1 billion.
Overall, state-budget deficits conservatively have reached a combined $10 billion, according to the governors association.
Among the states that have rainy-day funds -- surplus money set aside for unexpected shortages -- many already have tapped into them and some are considering using more.
Ohio has made up to $145 million of a $1 billion rainy-day fund available for the current two-year budget, and Gov. Bob Taft proposes tapping it for an additional $279 million.
"Prior to the Sept. 11 attacks, the economy was being held up in large measure by consumer spending -- not by businesses, but consumers,'' said Brian Hicks, Taft's chief of staff. "Since Sept. 11, there's been a great reduction in consumer confidence, and people aren't out spending.
"As we put our balanced-budget plan together,'' Hicks said, "we reviewed what other states are doing, and essentially we're all doing the same thing: a combination of cuts, tapping into rainy-day fund reserves and looking at some tax loopholes that would not have a detrimental effect on the economy.''
The survey found that just 10 states, including Alaska, Texas and West Virginia, are riding out the storm, mostly because of the economic benefits of plentiful natural gas, oil and mineral resources.
"It's going to be a very hard year,'' said Frank Shafroth, director of state-federal relations for the association.
Eleven states were battling recessions before the terrorist attacks, he said, and even states that were in good shape then are suffering now.
Midwestern states will be among the hardest hit.
The association study found eight Ohio cities among those expected to see declines in employment next year. Steubenville and Youngstown are among the top 20 projected job losers; the six others on the list are Akron, Canton, Cleveland, Dayton, Lima and Mansfield.
"People are going to have to pull their belts in,'' Shafroth said. "There will be hard choices to make. . . . The first things to go are things that people think are nice but not critical.''
Before Sept. 11, state and local tax revenues were growing at the slowest rate since tracking of those numbers began in the late 1950s.
Retail sales in the United States dropped 2.4 percent last month, a figure that would have been twice as large had retailing giant Wal-Mart not boosted the average.
Although Ohio and other states are hoping for a Christmas boost in sales-tax revenues, the forecast calls for a decrease from last year. Such a slide would represent the first decline since 1953, immediately after the Korean War, the study said.
Taft has been trying to sell his $1.5 billion budget-repair plan to a skeptical legislature.
The deal includes $600 million in budget cuts, $465 million in small tax increases (including taxing toll-free lines), siphoning the $279 million from the rainy-day fund and using $100 million of the proceeds from the national tobacco settlement. About $41 million would come from Ohio's participation in a multistate lottery and $10 million from an adjustment in the local-government fund.
Frustrated about his inability to persuade Republican legislative leaders to support the plan, Taft approached Democrats last week but received a chilly reception.
The nation's governors, while trying to put out fires in their respective states, also have an eye on the national picture.
The association recently sent a letter to congressional leaders warning that an economic-stimulus package proposed by President Bush actually might cost the states $5 billion annually, mainly in increased allowances for business expenses for equipment and property.
Ohio's estimated share of that loss ranges from $146 million to $380 million.
Regards, Jerome
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