Grim news for state budgets

Many states are greeting 2008 with a major budget hangover and are looking for relief from falling home sales, higher energy prices and reduced sales-tax collections after two years of overflowing coffers.

Red ink was showing up in as many as 20 state ledgers as the year began, and if the country dips into a recession, the number of states projecting deficits would certainly grow.

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The stalled housing market is hurting states across the board, but it’s more severe for states such as Arizona, California, Nevada and Florida that rely heavily on real-estate taxes.

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While personal income taxes are the largest single source of state tax revenue, revenue from sales taxes is more closely watched because its fluctuations are considered an early indicator of the health of the U.S. economy. As 2007 ended, 19 states told the National Conference of State Legislatures that overall sales-tax collections were failing to keep pace with what forecasters had projected for early 2008, signaling that states may face budget shortfalls.

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Unlike the federal government, which can run a deficit, every state except Vermont has a legal requirement to balance its budget. That means if tax revenues fall short of what a state had projected, then it either has to cut programs or find other sources of revenue.

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All this grim news comes at a time when national job growth is sluggish and consumer confidence is at a nearly two-year low. Eighteen states said they are “concerned” about their revenue outlook — triple the number of last year, according to NCSL.

Stateline