Thursday, July 1, 2010

50 States, 50 Budget Nightmares

It never ceases to amaze me as to just how all-encompassing the financial meltdown is.  Virtually all of Europe is clinging on by a financial thread.  China is wrestling with a property bubble and the slowdown in the economies of its export partners.  The United States is running a $1.5 trillion budget deficit.  The cracks in the financial dam don't stop there.  They extend to all 50 states, and nearly all cities and counties.

The easy places to trim spending have been exhausted long ago, forcing states to resort to very non-traditional measures such as selling ads on automobile licence plates, taxing sugary soda and borrowing from pensions.  Education was previously thought to be untouchable, but is now being gone after aggressively, including mass layoffs of teachers, administration support and vital school programs.

Of the 50 states, only Vermont, must balance its budget annually. The combination of cuts, tax hikes and accounting tricks have become familiar in state legislatures as the one-two punch of recession and housing downturn have dramatically reduced tax revenue for several years now.

For 2009 to 2012, states have faced nearly $300 billion in budget deficits, according to figures from the National Association of State Budget Officers. 

Last year, politically heated budget fights forced 9 states to miss their deadlines and begin the fiscal year without an agreement.  According to the National Conference of State Legislatures, 28 states have agreed to budgets this year and 16 had passed biennial budgets last year.  Eight states, including California, have extended their sessions or held special meetings to negotiate budgets.

New York, whose fiscal year began on April 1, is the only state yet to have missed passing a budget on time. California, which had to resort to paying its bills with IOUs during last year, is expected to miss this week’s deadline.

The budget problems continue way down to the city level.  Los Angeles is thought to be in danger of default and has resorted to closing city services several days per month.  Los Angeles Unified School District has endured extremely steep cuts to bring the budget in balance.  The desperation to balance the budget has led the city to use the Department Of Water And Power surplus to cover itself.

Most troubling to local governments is the combination of declining property taxes from the bursting of the real estate bubble combined with lower taxes from increased unemployment.  In fact, the unemployment is a double-whammy since this triggers more spending for unemployment and other mandated programs.

Only 15 of the 49 largest cities in the U.S. saw year-over-year declines in their unemployment rates in May, according to new Labor Department data, while the unadjusted national rate, at 9.3%, was 0.2 percentage points above its year-ago level.

Across the country, jobless rates were higher in May than a year earlier in 222 of the 372 metropolitan areas, lower in 141 areas, and unchanged in 9.  The Labor Department doesn’t seasonally adjust its data on city-level unemployment, making month-to-month comparisons difficult.  Adjusted for seasonal factors, the U.S. unemployment rate was 9.7% in May.

Unfortunately, the situation has turned into the most troublesome vicious cycle.  The more local governments are forced to cut back drastically, the more that the unemployment situation worsens, the more that pressure is maintained on home prices and the more that revenues to coffers are constrained.  Then, more budget cuts, more unemployment...

Marko's Take


  1. Marko,

    What is your take on the criminal manipulation that took place today on the gold/ silver markets.The amazing (and criminal) thing was the dollar dropping like a stone but gold dropping more than the USD!? Copper fell less than gold! These crooks have no shame!Of course our great CFTC as always just closes its eyes to this manipulation .
    All the economic news today on jobs, housing, auto sales etc, should of been gold friendly and made gold price shoot up, but the bullion banks with the blessing of the Fed manipulate the price down $43 or so, what a joke

  2. RD:

    I honestly don't think today was about manipulation. I do think it was about another deflation scare. The plunging money supply and lower bond rates suggest that deflationary forces will overwhelm demand.

    Deleveraging to meet margin necessitates that liquid investments be sold.

    Unfortunately, there will probably much lower prices, but who knows.


  3. Marko,
    you could be correct in your assessment of the gold decline today.But i still feel it was pure market manipulation. Why is it that gold most of the time will always trade up overnight in Asia ,then as soon as the comex opens down it goes ,this same pattern repeats itself over and over again .There was no reason for gold to drop as much as it did today .
    Gold is the enemy of Governments who control a fiat currency .
    GATA and others have proven without a doubt that governments manipulate the gold/silver markets.Why is it almost every time there is a jobs report or expiration time gold/silver is always taken down .check it out it happens every single time ,the bullion banks always use these events to take the price down .

  4. Correct me if I'm wrong, but I believe almost all U.S. states have a balanced budget clause of "some kind" in their Constitution EXCEPT Vermont, which nonetheless has balanced its budget every year for the past 20 years. Not that it does anyone any good . . .

    Here in New Mexico, we balanced our budget easily for eight years, from 1995 to 2003, when Gary Johnson was in office as Governor. Bill Richardson sent us right back into the Dark Ages.

    Now, we're looking at the possibility of putting another Republican governor in office, but one not nearly as Libertarian enough for my taste as one of her competitors in the primary, Doug Turner. But at least she, too, says she'll trim to the bone. We'll see . . .


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