Report identifies states in financial peril
Loss of state revenues, large budget gaps, increasing joblessness, high foreclosure rates, legal and poor money-management practices have brought California and several other states to the brink of financial disaster, according to a report from the Washington-based Pew Center on the States. The report, “Beyond California: States in Fiscal Peril,” also indicates that those states’ financial woes can slow the entire nation’s recovery from recession.
Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin join California as the 10 most troubled states, according to Pew’s analysis. Those states’ budget troubles affect residents through higher taxes or fees, layoffs or furloughs of state workers, and longer waits for public services. And, because the 10 states account for more than one-third of America’s population and economic output, their problems pose challenges for the nation as a whole, according to the report. “Decisions these states make as they try to navigate the recession will play a role in how quickly the entire nation recovers,” said Susan Urahn, managing director of the Pew Center on the States.
Pew scored all 50 states using data available as of July 31, 2009. The snapshot captured the first and second quarters of 2009, a time when governors and legislatures were crafting their budgets for fiscal year 2010 (which began on July 1 in all but four states). While the report is not a comprehensive diagnosis of states’ fiscal health — which also is affected by issues such as demographics, debt burden and public pension liabilities —it aims to be a tool for understanding why some states are suffering more acutely from the recession than others, according to Pew Center on the States.
While the 10 states identified in “Beyond California” have been hardest hit, all states have suffered from record-setting revenue drops, high unemployment and the foreclosure and credit crisis. “Virtually all states have been stressed by the downturn,” Urahn said. “We expect that when state lawmakers next spring turn to crafting their new budgets for 2011, many will confront an even tougher set of challenges. States already have made significant cuts, revenues continue to drop, and stimulus funds will be running out.”
The Pew report identifies vulnerabilities some states face as they try to navigate their way out of the fiscal crisis. For example, a number of states on the list, including Florida, Michigan, Nevada and Oregon, have struggled in part because their economies have depended so heavily on a particular industry, and they should, therefore, diversify their economies. Other states must focus on aligning revenues and expenditures, or reconsider constitutional limitations and other statutory or legal impediments to lawmakers’ latitude to respond to a fiscal crisis by raising taxes or cutting spending.
Download the full “Beyond California: States in Fiscal Peril” report.