Keating Report: Government Budgets & Spending Outlook, 2nd half 2009
Back in January, the Government Product News forecast on government budgets and spending was delivered amid a backdrop of bailouts and proposed stimulus packages, and unprecedented pressure on the government to resuscitate the nation’s critically wounded economy.
Six months later, some of the problems remain, such as high unemployment, sluggish credit markets and a teetering domestic automotive industry. A surging stock market, modest gains in home sales and growing consumer confidence, however, are signs that the worst may be over.
The American Recovery and Reinvestment Act (ARRA), that President Obama signed into law on February 17, is giving a needed shot in the arm to the U.S. economy. According to the St. Louis, Mo.-based consultants Macroeconomic Advisers (MA), the nation’s GDP could grow 1.4 percent this year and 0.8 percent in 2010, as a result of the economic stimulus of the $787 billion ARRA legislation.
Thanks in part to that stimulus, government purchases of goods and services for 2009 could reach $3.02 trillion, according to MA estimates. State and local governments will account for $1.82 trillion (about 60 percent) of those purchases. Total government purchases (consumption and gross investment) could grow 3.8 percent in 2009 over 2008 levels. For 2010, MA is forecasting a 2.5 percent annual growth rate in government purchases.
Tough economic times are affecting state government finances, according to Sujit CanagaRetna, senior fiscal analyst for the Council of State Governments (CSG) in Lexington, Ky. “State budgets continue to be under severe strain as the impacts of the worst economic crisis to hit the U.S. economy since the Great Depression filter through all segments of the country. Tax collection data for the first quarter of 2009 demonstrated a decline of 12.6 percent when compared with the same period last year with 45 of the 47 reporting states documenting a decline.
“Even more disturbing,” adds CanagaRetna, “is the fact that between January 2009 and June 2011, a 30-month period, the estimated cumulative budget shortfall for all states is expected to be a mind-numbing $350 billion to $370 billion.”
State governments “are slashing spending, tapping rainy day funds, and expanding gaming [in their states] and hiking taxes to deal with their budget gap,” CanagaRetna told Government Product News,
The Council of State Governments expert sees a few “green shoots of growth” on the horizon. They include: some positive news from the housing sector indicating that the pace of contraction might be slowing, as well as proof that the frozen state and local government credit markets might be thawing.
Even so, CanagaRetna cautions “state government revenues will lag a national economic recovery by many months, indicating that states will continue to face difficult fiscal choices.”
The concluding Part 2 of the mid-year 2009 Government Product News Keating Report budget and spending forecast will be posted at www.govpro.com in the next few days.