I'm fiscally challenged. Would someone PLEASE explain to me why

[Dover]

states that seemed to be fine a couple of years ago are ALL now suddenly broke? Is it a result of Bush policies, expenditures and looting....while bolstering Defense....or is there more to it? In other words, if Bush hadn't stolen the White House would the states be prospering?

Or is it mainly due to the stock market bubble bursting and all the market fraud?

Or is there an attempt to starve out the middle class?

I just can't understand how every state is suddenly suffering the same crisis of collapsed local economies. I suspect the answer would require a better understanding of economic factors then I possess.

The real estate market seems to be the only thing holding things up, and it's on its last leg.

Anyone wish to tackle this one and give a comprehensive answer?

[MissouriTeacher]

1. I don't know either

but my guess is that's is a bad combination of upping spending while revenues were high and at the same time cutting taxes.

Now with tax revenues much lower and less aid coming from the federal government, states simply cannot pay their bills.

[Systematic Chaos]

2. I sure ain't no genius here, either...

...but consider that the states CANNOT have budget shortfalls, unlike the Federal government. Furthermore, when the feds are totally strapped they will reduce funding to the states, which leaves the states in ever more of a lurch. This, in turn, reduces funding to help people in need, so now you have a whole sector of our society living in total destitution rather than merely on a knife edge.

It's like the old saying, "s**t rolls downhill".

[Fixated]

5. .....

Since when can't states hold deficits? Wouldn't the balanced budget be part of the easily amended state constitution? States use it as an excuse to bleed Washington dry.

[Systematic Chaos]

9. Well, I did say I'm no genius when it comes to this stuff.

I had heard that states couldn't have deficits. Guess I was mistaken or simply misunderstood what I was told. Sorry. :)

[Fixated]

12. ...

I don't want to mislead you. Most states have a balanced budget required as part of their State Constitution. However, it's really not an obstacle, as they can amend at will.

[dorktv]

Well actually this time the States have NOT gotten much

aid from D.C. The last bit was the paltry 20 Billion dollars. Bush and Co wanted to get rid that too.

[Fixated]

30. ....

The last "bit" as in the last year? That would be inaccurate...

[Isome]

40. Most states can't have deficits...

Though the types of deficits disallowed do provide wiggle room for some states, it isn't as simple as amending the constitution. There are five types of budget restrictions:

1. Governor must submit a balanced budget, i.e. no projected shortfall (1 state).
   
2. Legislature must pass a balanced budget (5 states).
   
3. State must correct any shortfall in next fiscal year (7 states).
   
4. No carryover of shortfall into next bi-annual budget cycle (7 states).
   
5. No carryover of shortfall into next fiscal year (29 states).

The tax policy center explains them in this way:

...to comply with the first three types of balanced-budget rules, which are prospective, some states overestimate revenues and underestimate expenditures in their budget projections. While only thirteen states have these prospective requirements, this group includes some of the largest states: California, Illinois, Michigan, New York and Pennsylvania. Only the final two types of balanced-budget rules are retrospective, explicitly prohibiting end-of-year shortfalls, and the fourth type binds only every other year.

States do not endeavor to amend their constitutions without expecting a hue & cry from their respective constituencies.

[Clete]

3. Tax cuts for the rich?

Jobs gone overseas? Foxes in the chicken coop running the government? Laissez-faire economic policies? I can't imagine why things are so bad.

[SaveABug]

11. Bingo! You win the prize

Federal tax cuts put the burden on the state and lower level legislatures. The plan is to starve the social programs - every damn one - from food stamps to public schools. The states are now having to make choices that they haven't had to consider for a generation regarding which programs to cut. A good example of the county funds drying up is the hospital indigent program. Poor people with little income are now being asked to make payments that will stretch for years when a few years ago the cost would have been written off - paid for with county funds.

[papau]

4. State tax cuts got GOP Gov's elected - now they need revenue

likewise spending was not as controlled as it should have been - but, IMHO, it was the tax cuts that put the States in a bind, followed by the Fed cuts on Medicaid as Medicaid grew.

[nothingshocksmeanymore]

6. Thanks for posting this Dover

I too am interested in the serious responses. I have a suspicion states are strapped with losses but also strapped for cash in having to deal with increased need for law enforcement without matching federal funds.

[searchingforlight]

7. I am not smart about this either and that is why I am at the mercy of

the "experts".

I do think it has something to do with unfunded federal mandates, corporate exodus and greed, stock market disappointments and some of it has to be from the combination of job losses (the drain on public services) and the lost income tax revenue from those job losses.

[RUMMYisFROSTED]

17. Not smart?

You're a genius! Right near the bullseye.

[sandnsea]

8. Unfunded LNCB, for one

It requires alot of spending by schools that they just don't have. Alot of school funding is now done at the state level because of equalization laws.

And less funding to States for social programs when States are the ones that hear it first when somebody dies because of lack of medical care or senior citizens get booted from nursing homes, so have a tougher time cutting those programs.

And less tax revenues due to the 'downturn' in the economy which is in part due to cutting the amount of tax money invested into local infrastructure, social programs, cops, firefighters, etc., whose jobs also fuel the local economy. As well as jobs going overseas.

At least that's my take on the whole thing.

[duid12]

10. capital gains

By far, the biggest reason that states are in the hole so much now, is because of the HUGE runup (and then blowup) of the stock market during the late 90's....when investors were making TONS of money in the market, the states collected TONS of extra money in capital gains taxes...most all the states acted like the money was never going to stop coming in and spent it all and then some...worse than just spending on time expenses, they built up a permanent cost by higher more workers, paying them more money, paying great benefits, promising new serives to taxpayers etc.

When the market crashed, the capital gains stopped coming in, and they won't be coming back anytime soon.

I don't blame Bush for causing the problem...I do blame him for not making it better, and in fact making it worse by cutting taxes (mostly for the rich) at the same time he continues to spend money like a drunken sailor on leave....if he gets relected we could have a federal debt of damn near $10 TRILLION dollars by the time he is out of office. To me, if you want to cut taxes, find the waste and cut it first, and then cut the taxes...but cutting taxes and spending records amounts at the same time is a recipe for *disaster*.

[dofus]

21. duid 12 has nailed it.

All during the 90's, and more and more as the decade wore on, most states collected windfall revenues because of the runup in the stock market. I know also that Kansas got several million dollars when Ewing Kaufman died and then his wife Muriel passed away a few years later. No rich people like that have died in Kansas lately, and capital gains collections are down to practically nothing.

[zekeson]

24. Yep, its loss of tax revenues

Good call. Not only aren't those revenues coming in like they were anymore, the states, as my own Minnesota did, compounded the problem by continuing state tax refunds even as they could see the economy crashing. Top that with the Fed doing their best to empty the treasury and not returning monies due to the states, and you got a big freakin' mess.

[Yupster]

35. Best answer so far duid

congrats.

California is hurt by this worse than most states because it gets so much of its revenue from a very progressive income tax. If you're depending on the very rich to pay a large percentage of your taxes, then you're depending on the stock market, which by its very nature will be wildly up and down. Why you would want to base your state revenue flow on something that you know will swing wildly is beyond me.

Most states of course receive the bulk of their income from property taxes, which are more reliable.

[jagguy]

36. Cali's very progressive income tax has high earners moving

lost about a third of them in the last year.

[happyslug]

13. Income and Sales are down

In most states the two biggest sources of Income are the State Income Tax and the Sales Tax.

If you have not notice people have been laid off which means they are NOT earning the income they did a few years ago. Earning less Income means paying less Income tax.

Along with a decline in Jobs comes with it a decline in buying large taxable items. For example most states #1 source for Sales Tax revenues is when people buy a car. Car sales are down thus so is Sales tax revenues. The other big source of Sales tax is when "White Good"s i.e Stoves, Refrigerators, Washers, Dryers etc are sold. In the recent down turn people are NOT buying as many new "White goods" as they did a few years ago, so Sales tax revenue is down.

Thus the States are all in trouble, Income is down and people are asking for more state benefits, i.e. Unemployment, Welfare, retaining programs etc. Thus expenses are up.

This is why the states are having a problem. It happens in every recession, the States Income has gone DOWN, while Expenses have gone UP. It happened in the early 1990s when Bush I was President (another recession) and happened in the early 1980s under Reagan.

Now when the Economy picked up in the late 1980s and mid-1990s the States had more income (Income Tax and Sales Tax revenue increased while unemployment and Welfare costs dropped). This is NOTHING new, the problem this time the "Boom" is NOT producing any jobs and thus no additional Income or Sales tax revenue. Until the "Boom" kicks in (and it does NOT look that will occur) every state will have this problem.

[aquart]

31. When the bubble bursts, a smart federal government would

Become a heavy duty employer, using the taxes on the wealthy to pay salaries for new road construction, school building, sweeping streets, writing plays, like the CCC and WPA, anything that contributed to the nation and got people working and spending.

Instead, Bush has cut gov't payrolls by privatized outsourcing which leaves people still poor and without benefits, so they still have to turn to the states for aid.

Myself, I would tighten rather than loosen regulations. Every rule enforced is another job. I'd sponsor grants for alternate energy research and innovation competitions for the best cheapest ways to meet those regulations.

Any new invention is a new factory and new jobs.

Either George is an idiot or he and his fascist prick friends deliberately destroyed this nation. It's treason and they should hang.

[Pepperbelly]

14. Here goes ...

During the booming 1990s, states both cut taxes and increased spending and it worked because what is taxed is economic activity ... wages, transactions, about anytime anyone owns something, buys something or sells something. However, when economic activity lessened considerably, both the increased spending and the lowered tax rates came back to bite the states on the ass.

This is the most basic I can break it down.

[MissouriTeacher]

16. I think that's almost exactly what I said.

:D

[RUMMYisFROSTED]

18. As a teacher...

you should be able to catch someone cribbing notes.

Just Kidding, PB.

[Fixated]

15. ....

Most states have been relying on Washington bailout (nearly $500 billion a year of the federal budget goes to helping the states) to keep them in the clear as far as deficits go. Any governor that claims to have balanced a budget (Dean, Bush in '00, etc.) is misleading you: they were bailed out by Washington. Now, when the actual economy began to sink (tax cuts, the dotcom bubble, etc.), the states fell into the red anyway because basic spending lowered. They now point the finger at Washington for their woes, when Washington has always been holding them up. Cutting federal assistance to the states is necessary. It would force the states to raise their taxes (meaning we would either receive the tax money back in federal cuts or use it to aid programs) and stop the finger pointing at Washington, alleviating a lot of what gives people the impression that it is the federal government that wants our money.

[Isome]

38. According to the Economic Policy Institute:

The reasons for the states' budget crisis are --

"...rising costs of employee health benefits, public safety needs, and capital spending. In October, driven by new public safety concerns and declines in revenues from sales tax, tourism, and state aid, a majority of cities needed to draw down reserves (Hoene and Bishop 2001)."

They go on to state --

As of February 2002, the National League of Cities (2002) estimated that added security expenditures had cost municipalities an additional $2 billion since September 11. An important component has been overtime pay for police and fire fighters (Hoene and Reinemer 2002), with some city governments responsible for protecting airports and water supplies.

They draw the conclusion that --

Neglect of the plight of America's cities needlessly inhibits U.S. economic growth, disrupts the provision of basic services, and weakens the common defense against terrorist threats to civilian public safety.

.::Source Link::.

EPI has far more credibility than the smarmy pronouncements of teenagers that are sickeningly similar to rightwing editorialists, who merely play economic experts when writing their biased columns.

[0rganism]

19. Another factor is Enron

On the West Coast, Enron has been a huuuuuge economic drain. In Oregon, over $300 Million in FICA money for electric utility employees (which was originally taken from ratepayers) has gone to the Cayman Islands. Furthermore, by claiming an operating loss during the last few years, the local Enron subsidiary has been able to pay $10 in state corporate minimum tax each time.

Then there's the price gouging of Californians, which is truly repulsive.

These things add up.

[catzies]

26. Yup. Our own personal "trifecta" courtesy of the BFEE.

Popping of the 1990's stock market bubble, the "energy crisis" engineered by Enron with Cheney's blessing and sucking us dry, and their efforts to overturn another election they couldn't win honestly are under way.

[depakid]

34. Not to mention Enron subsidiary PGE's

bankrupted retirement plan, which sucked even more money out of local communities-

People underestimate the collective impact of this kind of stuff. Every dollar that's taken out of local communities, whether it ends up in the hands of corporate criminals or simply vanishes into the coffers of large out of state corporations (think Wallmart) is one less dollar that circulates among local businesses. And when the small businesses- who actually pay taxes and don't send jobs overseas get hit like that, they have a hard time recovering, if they don't have to close.

[jagguy]

20. if the fed is dealing with reduced taxes from the recession

don't you think that the states are likely to be as well ?

Add in that they made programs depending on a rosy future (dot com boom) that did not happen. Their obligations were raised, their revenue slashed... trouble in the treasury.

I could go further on why the recession occurred and how it was exascerbated but I think its pretty well known by now.

That should cover it.

[Fixated]

22. .....

Actually, I think state taxes have stayed pretty much the same. Any factual back-up for that?

[jagguy]

27. which part ?

Tax revenues are based on income for states as well as federally. Income is down ergo tax revenues for both are down.

Spending programs ? An example here in Virginia involves the repeal of a personal property tax because the economy was projected to be so damn terrific that we didn't need the income anymore ! Well, the projection didn't pan out and a shortfall ensued.

Or was it something else you were wondering about ?

[Fixated]

28. ...

I was thinking that you meant actual tax percentages rather than tax revenues.

[jagguy]

29. sorry to be unclear

but I guess we're straight now.

[Isome]

39. You'd be right about that jagguy.

As others here have already said, state budgets have been affected by lower tax revenues, e.g. income from stock options exercised, withdrawals from IRAs and 401(k) plans, which are augmented by capital gains, and financial services industry bonuses. Though the effects aren't easily quantifiable, experts posit they could be "as large or larger" than the direct effects of capital gains cuts.

[Lydia Leftcoast]

23. In Oregon, fanatical tax cutters were in charge

beginning in 1990, led by Bill Sizemore and Don McIntire. They not only led initiatives to lower taxes but also initiatives that made it harder to raise taxes in an election (requiring double majorities, etc. and making their anti-tax moves part of the state constitution).

Because the state's economy as a whole was booming, revenues held pretty steady, so there were some budget cuts, but not ones that most people noticed. People with children in school noticed, for example, that extra-curricular activities and electives were getting cut or put on a fee basis, but hey, this is America, so who needs art and music anyway?

The Repiggies had put through another time bomb, the "kicker." Every time the state's tax revenues exceeded predictions by a certain amount, the state had to refund a portion of the tax paid. For me, someone who earned a little more than the median income, this amounted to $80.

Some people argued that we should have a "rainy day" fund, but the Repiggies just said that if the govt. took in more than budgeted, that meant that taxes were "too high." They also chanted the endless mantra of "It's your money." The kicker became a sacred cow, even though about half the people got $80 or less, and corporations like Nike made out like bandits.

When the economy went sour, causing a sudden drop in income tax revenues, everything came crashing down.

State economists estimated that if the "kicker" money had been set aside instead of refunded over the years, Oregon could have survived without any budget cuts. But as it was, the cuts came out of the flesh of the most vulnerable members of society.

Everyone above $11,000 pays the same income tax rate, so the state tax is for all practical purposes a flat tax. Also, the rate for corporations is lower than the rate for individuals. Both the rich and the corporations squeal loudly and get their radio shrills to help them squeal if anyone suggests making the tax system more progressive.

[last1standing]

25. I think it's pretty simple.

You can't cut taxes by 1.6 trillion during a recession, start two wars, the latter of which costs one billion per week, and not cut federal services. The gap has been absorbed by the booming budget deficit and by reduced allotments to states that now must pick up the tab with either their own budget deficits, increased taxes or reduced services.

[Robbien]

32. Four reasons

l) The tax cuts. Many of the tax cut federal programs removed money from taxable income. Removing it from federal also removed it from state. Lower tax base, lower taxes.
2) Unemployment. Pull people from the taxable wage group, lower taxes.
3) Unfunded federal mandates. The more widely publicized is education funding, but there are many more. Homeland security mandated measures quickly come to mind, but there are plenty being forced on states which are not funded.
4) They have done some nasty shifting of liability for Medicaid/public aid programs. States are having a big problem coping.

Then of course there is the general overall economy.

[TahitiNut]

37. Good summary. I agree.

In addition, California was raped by the Enron cabal.

[paulk]

33. in Colorado

a republican governor, (Owens), and legislature forced through huge permanent tax cuts and pushed some big publically funded transportation projects. The Bush recession hit and revenues dive bombed. Now we're in a bind because we have TABOR - which makes it almost impossible to raise taxes. So public services get cut. Funding for the arts drops to 49th in the states. But the Broncos have a new stadium!

In the meantime, Owens gets re-elected in a landslide. And people keep coming here...