Exodus from Florida

The same economic pressures that pushed California to the brink of insolvency are wreaking havoc on other states, a new report has found. The 10 most troubled states when it comes to insolvency are: Arizona, California, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin.

While many other states — including Colorado, Georgia, Kentucky, New York and Hawaii — are not far behind, the fact that Florida has now a negative population growth is going to make the havoc worse here and how state officials will deal with their fiscal problems could reverberate across the United States, according to a Pew Center (www.pewcenteronthestates.org) report released Wednesday.

The list of most troubled States is based on several factors, including the loss of state revenue, size of budget gaps, unemployment and foreclosure rates, poor money management practices, and state laws governing the passage of budgets.

These troubles have forced these states — as well as many others — to raise taxes, cut subsidies, lay off and/or furlough state workers and slash services. Considering that these 10 states account for more than 1/3 of the entire US population and its economic output, it is safe to say that there will be a substantial impact on the recovery of the economy.

Susan Urahn, managing director of Pew Center on the States pointedly noted that: “Decisions these states make as they try to navigate the recession will play a role in how quickly the entire nation recovers.”¬† The Center on Budget and Policy Priorities found that states will likely have to make steep cuts in their fiscal 2011 budgets, which start next July 1 in most states. That’s because the critical federal stimulus dollars will run out by the end of 2010 and the first ugly effects on inflation caused by printing too many dollars will be evident by then. These cuts could take nearly a percentage point off the national gross domestic product and add another 900,000 jobs to the nations unemployed, the study found.

Analyzing the 10 most troubled states

Here’s a summary of what Pew found is plaguing each of the states:

Florida: For the first time since World War II, Florida’s population is shrinking — bad news for an budget built on new residents flocking to the Sunshine State. Lawmakers raised $2 billion in new revenue this year, but could face a similar shortfall next year. Now wonder also that the housing market in many places has collapsed for the long haul.

California: The Golden State’s housing collapse — and resulting unemployment surge — has plagued the state’s economy. The weakening economy prompted revenue to fall by nearly a sixth between the first quarters of 2008 and 2009. State lawmakers have limited ability to deal with California’s massive budget gap due to several voter-imposed restrictions, including requirements that all budgets and tax increases pass the legislature by a two-thirds majority.

Arizona: The state depends heavily on a growing economy to bring in tax revenue, and lawmakers don’t have a lot of leeway to address budget deficits thanks to voter-imposed spending constraints. Lawmakers relied on one-time fixes to balance its budget instead of making long-term changes.

Rhode Island: The Ocean State has among the highest unemployment rates in the nation and among the highest foreclosure rates in New England. High tax rates, big budget deficits and a lack of high tech jobs are hurting its chances to pull out of the doldrums. State government has a poor record of managing its finances

Michigan: The state never climbed out of the recession that started in 2001, and matters only became worse during the Great Recession. Two of the Big Three Detroit-based automakers went bankrupt in 2009, sending shockwaves through a state on track to lose a quarter of its jobs this decade. The recession accelerated drops in state revenue, and has left Michigan’s government trying to deal with today’s problems on a 1960s-sized budget.

Nevada: Nevada is one of the recession’s big losers as its gaming-based economy suffered. Year-over-year revenue has fallen for two consecutive years, a record. But changing tax laws is tough because some are written into the state constitution.

Oregon: Oregon’s leading industries, such as timber and computer-chip manufacturing, have been hit hard in the recession. Lawmakers have approved more than $1 billion in new taxes to keep it afloat. But voters in January will have the final say on another $733 million in new income taxes.

New Jersey: The Garden State, which has been plagued by years of fiscal mismanagement, spends more than it collects in revenue. The collapse of Wall Street, which supports about one-third of New Jersey’s economy, has only made matters worse.

Illinois: Since the last recession earlier this decade, the state piled up huge backlogs of Medicaid bills and borrowed money to pay its pension obligations. The state’s current budget still relies heavily on borrowing and paying bills late.

Wisconsin: Wisconsin has a long history of budget shortfalls. It also borrows frequently to cover operating expenses, among other measures. Unemployment is climbing as manufacturing, the state’s largest sector, sputters.

More stimulus needed ?

The Center on Budget and Policy Priorities, a liberal research group, says the states need additional federal fiscal relief to avoid budget cuts that will hurt both the economy and people. State and local spending accounts for about one-eighth of the GDP. This however might be a hard pill to swallow for more conservative and fiscally responsible citizens.

Fact remains however that less than five months into fiscal 2010, several states are looking at additional budget cuts.  Rhode Island announced already it is facing a revenue shortfall for the current fiscal year of $130.5 million. Gov. Donald Carcieri said the state must examine its aid to local governments, since it has already cut personnel and social service programs.

California, Gov. Arnold Schwarzenegger said that his state is facing a budget gap of up to $7 billion. The state will likely announce across-the-board spending cuts in January.
“So we just have to hang in there, tighten our belts and live within our means,” he said.

Budget projections show that states could face deficits as large as $260 billion in 2011 and 2012 after stimulus funding is exhausted. State economies usually take up to two years longer to recover after the nation’s fiscal health begins to improve. New budget cuts and tax increases “will be a serious drag on the economy at just the wrong time,” said Mark Zandi, chief economist at Moody’s Economy.com. Without federal assistance, the economy could slide back into a recession, he said, which means we’re looking at an interesting time ahead of us.

If you enjoyed this post, please consider leaving a comment below or subscribe to the feed to have future articles delivered to your e-mail and get the latest Amelia Island News, business, tourist activities and videos every morning!

You can also choose to follow SearchAmelia on Twitter to get your daily updates!