States Bearing the Brunt of Slowing Economy

The News & Advance
Published: April 26, 2008

As the national economy slows, the effect is being felt most acutely in state capitals across the nation. In a report released Friday, the National Conference of State Legislatures (NACL) paints a bleak picture of the situation the states are facing today.
In the fiscal year that will begin July 1, the situation grows even bleaker.
Tax revenue is down across the board, says the NACL report. Fuel prices have been on the upswing for more than two years, and the impact is finally being seen in food prices. As a result, after paying for the necessities of daily life, people have less discretionary income to spend on clothes, new cars, furniture, appliances and other items. That translates in less sales tax revenue, less meals tax revenue, less gasoline tax revenue … you get the picture. Throw in the subprime mortgage crisis and resulting credit crunch, and America’s middle class — the driver of the national economy — is in a tight squeeze.
Tiny Delaware, according to the NACL, is staring at a $69 million budget gap, pretty huge for a state with a budget of only $3.4 billion. Across the country, California is facing a $16 billion — yes, billion — shortfall in a state budget that’s approaching $104 billion. Down in Florida, which has been hit especially hard in the popping of the real estate bubble, state budget planners are not projecting improvement any time soon.
And the picture’s been getting steadily worse since the beginning of the year. In January, just eight states were reporting current budgets that were coming up short of revenue projections; by mid-April, according the NACL report, that number had doubled. The upcoming fiscal year looks worse, with 23 states and Puerto Rico bracing for big shortfalls.
Virginia, one of the best-managed states in the country, is also feeling the economic pinch.
During the recently concluded 2008 session of the General Assembly, legislators had to deal with a shortfall in the biennial budget that topped $1 billion, out of a total spending plan of close to $78 billion.
Legislators dipped into the state’s rainy-day fund, trimmed spending, slowed capital projects, scaled back programs, all to keep Virginia’s spending in line with its revenues.
But there’s a downside to down economic times, as states like Virginia will learn sooner or later.
The commonwealth faces a growing transportation crisis that will only grow worse as more time passes. The Assembly was unable to address highway and transportation needs in the past session, and a special session called by Gov. Timothy M. Kaine looms for later this spring. Raising the gas tax for highway needs in addition to tapping other revenue streams for transportation needs was more than the anti-tax wing of the Republican party in the House of Delegates could stomach. Even if Gov. Kaine calls a transportation session, the odds of success are steep.
And as steep as the odds of success are, the price of any future solution to Virginia’s pressing highway, transportation and infrastructure needs will only grow steeper as more time passes.
As painful as economic downturns are for state and local governments, there are opportunities to be found.
The opportunities include the chance for leaders to take a serious look at how government is structured and staffed, in order to see if new management techniques can be implemented and overhead trimmed. It’s also a time for government leaders to reassess what programs, departments, projects and initiatives can be modified or dropped altogether.
What it’s not time for state government to do is simply shift its obligations down the food chain to localities, passing the buck as it were, to stressed local governments.
Unfortunately, that’s a temptation many spineless politicians in state capitals across the nation will wind up doing.