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Monday, August 10, 2009

WaPo: Ailing States Face Bleak Outlook

by Calculated Risk on 8/10/2009 09:35:00 PM

From the WaPo: Stimulus Funds Bring Relief to States, but What About 2010?

As states across the country grapple with the worst economy in decades, most have cut services, forced workers to take unpaid days off, shut offices several days a month and scrambled to find new sources of revenue.

The good news is that much of the pain this year has been cushioned by billions of dollars of federal stimulus money, which has allowed states and localities to avoid laying off teachers, prison guards, police officers and firefighters.

The bad news is that for the next fiscal year, beginning in July, the picture looks even bleaker. Revenue is expected to remain depressed, even if the national economy improves. There will be only half as much federal stimulus aid available, and many states have already used up their emergency reserves.
The article discusses the budget situations for a number of states. But here is a little positive news from California State Controller John Chiang today:
... When adjusting for Registered Warrants issued on personal income and corporate tax refunds, General Fund Revenue was 8% below July 2008. However, the pace of deterioration has slowed considerably relative to the 39.4%, 39%, and 17.7% deterioration in March, April, and May, respectively.

This slowing decline can be attributed to several factors ... First, the Governor signed a bill in October that imposes a 20% understatement penalty on corporate tax. Companies were given the option to avoid the penalty by filing an amended return and paying their actual tax liability by May 31, 2009. As a result, corporate taxes saw sharp increases as firms took action to avoid the penalty.

Second, the sales tax rate was increased on April 1 from 7.25% to 8.25%. This has helped to bolster the sales tax revenues collected by the State, which were up 20.8% from last July. Another policy change that has had a positive impact on California’s sales tax collections is the Federal Government’s “Cash for Clunkers” program. ... This program has been successful in boosting demand for new automobiles, and thus, generating additional tax revenues for California. Although this positive indicator is driven by economic incentives created by policy changes in Washington D.C. more than a genuine rebound in consumer activity, any encouraging signs in the economy were virtually nonexistent six months ago.