Bad economies in states to worsen: governors

(Reuters) The already gloomy conditions of states’ economies are set to worsen, according to preliminary survey findings from the National Governors Association released on Saturday.

“The situation is fairly poor for a lot of states around the country. In fact, most states,” Vermont Governor Jim Douglas, who is chairman of the association, said at a press conference at its annual meeting.

“What we’re finding out from a fiscal standpoint is that the worst is yet to come,” Douglas said.

In a survey conducted last week of 45 of the 50 states, the group found that states have $18.8 billion of budget gaps yet to be closed in fiscal 2010. This comes after they have already imposed measures to eliminate budget imbalances totaling $87 billion in the fiscal year, which for most started last summer.

In the budgets they are drafting for fiscal 2011, states foresee shortfalls of $53.6 billion and for fiscal 2012 $61.6 billion.

“Economists have declared the national recession over. But for those who are still unemployed, for those who have lost their homes, it’s clear that as a nation we have a long way to go,” said Douglas, who added that states’ revenues have plummeted for four quarters in a row.

States’ economic recoveries usually lag national recoveries because of state governments’ increased spending on help for the unemployed and declines in tax payments.

All states except for one, Vermont, are required to balance their budgets, so during the recession they have drastically cut spending on basic programs, laid off workers and boosted revenue through raising taxes and fees.

The $787 billion stimulus plan the U.S. Congress passed a year ago included the largest transfer of money from the federal government to states in the nation’s history. But for many states, most of its funding will run out by December.

New Jersey Governor Chris Christie, also at the press conference, said the stimulus had delayed problems but not solved them.

Douglas said the governors will press President Barack Obama for more help when they visit the White House on Monday.

States Try to Tax More Services as Coffers Deflate

(Wall St. Journal)   Will plumbers, lawyers and hot-air balloon operators be forced to pitch in to solve state and local government revenue shortfalls?

Sales taxes today mainly, though not exclusively, hit sales of tangible goods like cars and couches. Faced with the worst budget crisis in a generation, many states are looking to expand sales taxes to services, such as lawn care or accountants’ advice. The goal, legislators say, is to broaden the tax base to cover a broader swath of the economy as traditional sources of tax revenue decline.

Although in early stages, service taxes are being considered by legislators around the country. In Kentucky, representatives have introduced a measure to extend sales taxes to some high-end services like limousines and balloon rides. In North Carolina, the legislature last year considered, but didn’t pass, a proposal to tax services such as car repairs and lawn care.

In Maine, the legislature last year passed a law that would lower income taxes for most residents but extend sales taxes to services such as car repairs and dry cleaning. It faces a voter referendum in June.

Many states already tax some services, such as hotel rooms and restaurant tabs. And the service sector is indirectly taxed through the wages of employees providing those services. But as of 2007, the latest data available, only seven states taxed the consumption of professional services such as doctors and lawyers said the Federation of Tax Administrators, a trade group of state tax agencies.

A Majority Of States Are Now Insolvent

Zero Hedge recently highlighted the ever increasing Federal outlays on unemployment insurance, leading to questions on whether the true unemployment rate, as indicated by actual cash outlays, may be materially higher than indicated in increasingly dubious governmental reports. One proposed alternative has been that the Federal government is directly subsidizing standalone states’ depleted unemployment insurance trust funds. Using data provided by ProPublica we have been able to confirm that indeed standalone states are for the most part now bankrupt and have no reserves left in their coffers when it comes to funding ever increasing insurance benefits. As ProPublica indicates, there are now 26 states which have depleted their trust funds, among these are the usual suspects including California, Michigan, New York, Pennsylvania and Ohio, which now rely exclusively on borrowings from the Federal government to prevent the cessation of insurance payments to recently unemployed workers.