Multiple States Facing Severe Budget Deficits
The financial troubles that are currently plaguing the state of California are well-known and well-publicized.
California is currently facing a budget deficit of nearly $20 billion dollars. A deficit of this magnitude will be nearly impossible for the state to close by itself, so Governor Schwarzenegger has announced that the state will be seeking nearly $7 billion dollars in federal funds to help close the gap.
The likelihood of such an infusion of cash is unlikely, according to experts, meaning that the state will have to enact some painful and unpopular measures to help close the gap.
While California is currently experiencing the worst budget crisis of any of the 50 states right now, there are a number of other states that are in dire straits as well.
According to the Pew Center on the States, California is looking at a 49.3% budget gap for the 2010 fiscal year.
This gap has come as a result of plunging revenues - according to the report, California's revenues will drop over 16% this year. Personal income tax revenues, sales tax revenues, corporate tax revenues - everything is plummeting due to the downturn in the economy. Companies aren't doing as well, so corporate tax revenues are falling. People are losing their jobs, so personal income tax revenues are falling. People aren't spending as much, so sales tax revenues are falling.
The result? A massive deficit that will be incredibly difficult to deal with.
California isn't the only state that is dealing with a massive budget gap. Here are some other states that are going to have a very tough time with their 2010 budgets:
Alaska - 30.0% budget gap
Arizona - 41.1% budget gap
Illinois - 47.3% budget gap
Nevada - 37.8% budget gap
These are just the most severe of the state budget gaps..
This is going to continue to be a very big story as these states (and others) figure out how to deal with these budget gaps.
One thing is for sure - there will be some significant pain in the form of massive spending cuts and tax increases.
Will these states need to turn to the federal government for bailouts?
Will the federal government offer any money if and when they are asked?
Should the federal government (and by extension, the US taxpayer) be willing and able to provide funds to states that are facing nearly insurmountable budget gaps?
The next major financial crisis in the United States could very likely result from some of the massive budget gaps that states such as Illinois and California are facing.
Source: Pew Center on the States
Filed under: The Economic Meltdown