Aware Brain

According to the Center on Budget Policy and Priorities, 46 out of 50 states are currently running a budget deficit. The state of California has already suspended payments of income tax refunds, and the San Francisco city suburb of Vallejo has filed for bankruptcy.

How does this all play out? The CBPP report compiled data directly from the proposed budgets and governors offices of each state to arrive at the conclusions. In order for states to get their finances back in black ink, either revenues must increase, or expenses decrease. Most state revenues come from taxes. Sales taxes, income taxes, and property taxes are all tied into economic production and income of its residents and constituent businesses. Those are unlikely to increase anytime soon. In fact, most of these budgets were created before the waves of layoffs began to hit early this year. Since those are likely to continue, even the current budgets are probably overly generous. The report even projects that the deficits will double by 2011.

State expenses are tough to cut dramatically without having serious effects on public services and the public lifestyle. Most of the budget deficits were in the double digits, and cutting 10% – 20% just to get to even is not easy. A couple of years of serious losses can put states in the position of having to declare Chapter 9 bankruptcy.

In fact, it may not even take that long. According to the Governor of Arizona, that state is 90 – 120 days away from running out of cash. In the current lending environment, bond issues and municipal credit is not easy to come by, even if it allowed under the state statute.

It would not take long for the few states not currently in the red to be dragged down by the rest. Having even anywhere near 1/2 of the states be functionally bankrupt would make for a seriously insecure environment nationwide. The cutback in services would trickle down to county and city government levels. Police, fire, and rescue service cutbacks are already happening, and are disconcerting to area residents affected. The oldest fire station in Atlanta was closed last year, and the press conference turned into a shouting match between the neighborhood residents and the Mayor, Shirley Franklin.

Less conspicuous are cutbacks in occupational inspectors, such as restaurant and job safety enforcement officers. These are not as obvious, but can open up loopholes for unsafe conditions for residents.

This is going to be a subject more frequently reported in the coming months and years. In 2005, the idea of a “mortgage crisis” was not widely known, and was just starting to trickle out into the public. Today it is impossible to not be affected by it.

News about state and local budget crisis’ will follow the same pattern. Municipal bankruptcies and service interruptions will be the most significant factor to affect American citizens over the next three years, and will even surpass unemployment in terms of how serious and immediate an issue it will be for people.

~ by Dave on February 2, 2009.

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