50 States… A $300 Billion Black Hole… And 10 Years “Lost”

by Martin Denholm, Senior Editor
Friday, March 5, 2010

A “lost decade” of “permanent retrenchment.”

Quoted on Stateline.org, that’s how economist Raymond Scheppach, head of the National Governors Association for the past 26 years, sums up the “State of U.S. States.” He argues that when the recession began in December 2007, it kicked off a decade of deep spending cuts, job losses and a struggle for states to generate revenue.

So far, he’s right.

Since December 2007, U.S. states have collectively run up a $300 billion budget gap, according to the National Conference of State Legislatures.

And although the U.S. economy has rebounded strongly over the past two quarters, America’s states are still in big fiscal trouble. The first year or two after a recession is historically the worst time for states, as they try to recover and re-adjust their budgets.

For example, Stateline reports that…

  • Over the next 25 years, Minnesota’s state revenue will grow at half the rate of the 1990s.
  • It may take five years for New Jersey’s revenue to return to 2008 levels.
  • Arizona has sold and leased back its main government building in order to raise money.
  • Michigan can no longer afford its state fair.
  • In Hawaii, 500 residents donated their own money to keep a public library open that the state planned to close, due to budget cuts.

Add in double-digit unemployment and the negative effect that it will have on consumer spending and you can see that this post-recession climate is arguably the worst that U.S. states have faced in post-war history.

As Susan K. Urahn, managing director of the Pew Center on the States, which tracks states’ fiscal health says: “This recession has cut too deeply. There’s no question that states are going to consider changes that in some cases could be dramatic.”

Investment U publisher Robert Williams digs deeper into the budget crises facing U.S. states in this eye-opening column about the fiscal state of emergency

Best regards,

Martin Denholm