Tax Revenue Drop Fuels States' Financial Crisis

Published July 02, 2009

| AP

An across-the-board drop in tax collections, coupled with a prolonged recession, has states facing their worst fiscal crisis in decades.

Several states are entering the first weekend of the fiscal year and July Fourth holiday without a budget in place and facing the prospect of government shutdowns and program cuts. California is ready to start issuing IOUs to vendors because the state is out of money.

The sputtering economy has ravaged all forms of tax collections. Taxes ranging from sales to personal income to property are all down, said Brian Sigritz, a staff associate with the National Association of State Budget Officers in Washington, D.C.

New York State's Rockefeller Institute of Government says last year's drop in sales tax revenue was the worst in more than 50 years and early data in 2009 suggests the problem has worsened.

The National Association of State Budget Officers says 42 states wrestled with budget deficits this spring, the most since the organization began tracking budgets 30 years ago.

"This downturn, even more so than previous downturns, really is affecting every state right now," Sigritz said.

States weathered similar problems in the recessions of the early 1980s, 1990s and earlier this decade. The confluence of so many problems hammering the economy at once make the present situation appear worse.

"Numerous things look worse than some past recessions," said Bert Waisanen, a fiscal analyst with the Denver-based National Conference of State Legislatures. "The housing market is worse. Industrial production is worse. Wages are nearly worse."

California Gov. Arnold Schwarzenegger declared a fiscal emergency and ordered state offices closed three days a month to save money as state officials plan to pay bills with IOUs starting Thursday.

Deep budget cuts have already forced California school districts to cancel summer school programs, moves that have affected -- among others -- elementary and middle school students in Los Angeles, which has the country's second largest district.

School officials in North Carolina, Oregon, Florida and other states have also cut or limited summer classes.

North Carolina's budget crunch apparently wasn't bad enough to persuade lawmakers to work through the holiday weekend.

House and Senate negotiators said Thursday they will go home rather than iron out differences in taxes and spending, despite Gov. Beverly Perdue's stern advice to finish the budget.

Pennsylvania schools still don't know how much state money they'll receive and may have to reopen their budgets to add or subtract spending. The state's budget year began Wednesday with no sign of a deal between lawmakers and Gov. Ed Rendell.

Ohio Gov. Ted Strickland and lawmakers are stymied over a proposal to allow casino-style gambling to raise money. As a result, the state started its budget year with a one-week temporary budget.

That interim spending plan was already putting a strain on some social service groups Thursday.

The state food pantry agency has only $163,000 available to spend on produce this week, regardless of how much more they could purchase. The group spends $400,000 a week at the height of Ohio's harvest.

"This budget impasse is impacting real Ohioans," said Lisa Hamler-Fugitt, executive director of the Ohio Association of Second Harvest Food Banks. "People for the first time in their lives are now finding themselves standing in the food line because they've lost their jobs, their incomes aren't stretching."

URL

http://www.foxnews.com/politics/2009/07/02/tax-revenue-drop-fuels-states-financial-crisis