Struggling Grow: With Few Promising Signs on the Horizon for State Budgets, Lawmakers Face Another Year Full of Difficult Decisions

By Thornberg, Christopher | State Legislatures, January 2013 | Go to article overview

Struggling Grow: With Few Promising Signs on the Horizon for State Budgets, Lawmakers Face Another Year Full of Difficult Decisions


Thornberg, Christopher, State Legislatures


[ILLUSTRATION OMITTED]

To say it has been a rough few years for state and local governments would be an understatement. Although the economy has been modestly expanding since 2009, the public sector in aggregate has continued to run deficits for almost five years. This has never happened in the time since officials began collecting reliable data following World War II. The deficit today is still roughly 6 percent of revenues--the same as it was in 2009, according to the U.S. Bureau of Economic Analysis. The result has been the ongoing contraction in the provision of basic public services.

Indeed, the slower-than-normal growth experienced in the U.S. economy over the last two years can be chalked up almost exclusively to budget issues at the state and local government level. Since 2010, the private sector has been growing at an annual rate of 3.2 percent compared to 3.4 percent between 1995 and 2007. The public sector, on the other hand, has been contracting by roughly 2 percent a year in real terms--and this is the drag that is pushing down overall U.S. growth to the 2 percent range.

[GRAPHIC OMITTED]

Deep and Wide

Why the ongoing difficulties? There are a number of causes. One is the depth of the downturn that hit the U.S. economy. But more significantly is the weak recovery. The common strategy used by state and local governments when dealing with cyclical budget gaps is often the 'kick the can down the road' option--using stopgap measures and temporary cuts. And this isn't a bad method if revenues come back strongly during the recovery period, as they typically have. Employing temporary and stopgap measures avoids intensifying the strength of a downturn by not adding public spending cuts to an already weak private sector.

This time, however, the recovery in state and local revenues has paralleled the overall weak recovery of the economy--implying this same strategy has done little more than push the deficit down the road. Added to this has been a general reluctance to raise taxes (given the potential impact on the weak recovery), and a decline in federal support as the stimulus programs have faded away. Moreover, several states have seen many of their expenditures put on autopilot through voter referendums and public union contracts, limiting lawmakers' choices greatly.

[GRAPHIC 1 OMITTED]

Where's the Light?

So is there any light on the horizon? Yes and no. On one hand there are a number of solid signs pointing to recovery in real estate markets. Sales are on the rise, inventories are shrinking and prices are finally starting to increase. The latest Case Shiller index figures show prices up on a year-on-year basis in all of the 20 major markets they track, as well as on a national basis. Housing permits are also rising. This will help bump property tax revenues starting this year.

Other revenues are also bouncing back. Tourism has returned. Visitors are filling hotels and bringing transient occupancy tax revenue increases with them. And because real personal incomes have increased in absolute terms over the course of the last year, and there have been rebounds in the equity markets, the 43 states that levy an income tax (all except Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming) will see a solid bump in revenue next year.

[ILLUSTRATION OMITTED]

This will be, however, at least partly offset by weaker results elsewhere on the balance sheet. Even though corporate profits are up from a year ago, they have been flat in recent months. This implies that the healthy gains states with corporate taxes have enjoyed may have come to an end.

The Federal Factor

An even more important concern is what path the federal government will take to close the deficit at the national level of the economy.

Negotiations between the newly reelected Democratic president and the Republican controlled House are sure to be tense, and may even take us past the January 1 deadline. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Struggling Grow: With Few Promising Signs on the Horizon for State Budgets, Lawmakers Face Another Year Full of Difficult Decisions
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.