Friday, April 25, 2008

A Financial Storm Is Brewing

News reports indicate that many states appear to be in recession as deficits are growing.
The weakening economy is hitting tax revenue in a number of ways: People's discretionary income is being gobbled up by higher food and fuel costs, while the tanking housing market means people are spending less on furniture and appliances associated with buying a house.

The National Conference of State Legislatures said the news is even worse for the upcoming fiscal year, with 23 states and Puerto Rico already reporting budget shortfalls totaling $26 billion. More than two-thirds of states said they are concerned about next year's budgets.

The results are consistent with a drumbeat of bad economic news for states that several budget groups have produced in the past few months.


some economists have pointed to the string of declines in manufacturing orders to argue that the economy has fallen into a recession.

Bolstering their position, the Commerce Department reported Thursday that sales of new homes plunged in March to the lowest level in 16 1/2 years. The government also reported that orders to factories for big-ticket goods fell for a third straight month in March, the longest string of declines since the 2001 recession.
In CT, the projected budget surplus that was forecast was $263.2 million for the current fiscal and now it has shrunk to $15.7 million. The state budget is $18+ billion. Then again, any surplus means that taxpayers are being over taxed.

The Courant reported on a shrinking CT surplus:
One of the problems is that the state has paid out about $30 million more than expected in income tax refunds, along with collecting $20 million less in personal income taxes — cutting the projected surplus by a combined $50 million.

[Governor] Rell's budget office also lowered its estimates on the real estate conveyance tax by $5 million as the real estate market continues to slow, and payments from the two Indian gambling casinos were lowered by $6.1 million.

Overall, [Speaker of the House] Amann said, he is not particularly worried about the state's budget picture because many other states are facing deficits and are in far worse shape financially.

He predicted that the legislature's fiscal office would place the surplus at $30 million — double the governor's estimate.
CT taxation, spending and surplus aside, in my own town, the Town Council just adopted a 7% increase in spending which translates to 7%+ increase in their tax bill for most, and over 10% for at least a third of our taxpayers. The average tax bill (i.e. for a home valued at $354,000) is over $600+ a MONTH! Needless to say, taxpayers here are pursuing a referendum on the issue. Other surrounding towns have already slowed their spending and have come in with 3 and 4% increases in their budgets.

I think the message should be that states and municipalities have to cut spending NOW and give people some really meaningful tax relief. If that translates into less services and programs or staff reductions then that is what has to happen. The other alternative of course is to drastically change how we raise revenue to pay for things. But the message is clear, times are getting more difficult financially for many people and we can't keep going to the well of the public purse like some have become so very used to. It's time to take a really closer look at how money is being spent and allocated. Afterall, that is what every single household is also doing.