States Facing Growing Budget Problems

Add comment March 17th, 2008

The New York Times had a piece today that shows Illinois isn’t the only state with budget problems, in fact, some states have it much worse.

Many states are reporting their largest budget shortfalls since the recessions of 2001 and 1991-2.

Of course, the usual suspects appear in the Times’ story as the reasons that states are hurting financially.

Ms. Lav pointed to a confluence of factors — including weak consumer spending, high energy prices, dropping housing values and growing foreclosure rates — that suggest states will face a protracted struggle to keep their budgets afloat.

Earlier we told you how the Illinois tax revenue is slowing, and the state’s mound of unpaid bills is growing by the day. In fact, even though our governor’s pet issue is health care, Illinois’ mutli-million dollar Medicaid debt landed the state on the list of states with proposed health care cuts. (Check out this great graphic that shows where Illinois and other states fall. You will need to click on the graphic to see it better.)

The governor delivered a skeleton budget this year with old revenue ideas that have failed before, but unsurprisingly, he was mum on the idea of a tax increase. A few Democratic senators, however, believe this is the only way to pay off the state’s bills.

A couple of other states agree.

While most states are looking to address their budget anguish through cuts, tax increases are occasionally broached.

The Maryland Legislature made the difficult choice of increasing the state’s sales tax to 6 percent from 5 percent, raising its corporate taxes to 8.25 percent from 7 percent, and bumping the state’s cigarette tax to $2 per pack from $1. In Kentucky, the governor has proposed a 70-cent increase on cigarette taxes, raising it to $1 a pack, and Mr. Schwarzenegger in California has spoken vaguely about closing “tax loopholes” in his state.

The piece ends with this warning:

Ray Scheppach, the executive director of the National Governors Association, said things were likely to worsen over all. “The major impact on states is the year after a recession stops or the following year,” Mr. Scheppach said, because personal income taxes tend to lag economic recoveries. “It is really sort of the worst as you begin to recover.”