States' coffers are feeling a pinch
Housing bust and falling sales-tax revenues remind some officials of the period before 2001 recession.
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What most bears watching is the intangible factor of consumer confidence. "Tax collections can change overnight with good news or bad," he says. "The extreme was 9/11, but there are other things like unexpected jumps in unemployment claims, a drop in the stock market, a rise in oil prices, international instability, or a combination. We have not yet seen a rise in unemployment or a decline in the stock market."Skip to next paragraph
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Nevada loses big source of revenue
But states report that the general drop in consumer confidence nationwide is having an effect in their state. Clark County, Nev., for instance, has seen housing values drop as much as 20 percent, as reported by the Las Vegas Sun. A falloff in out-of-state visitors to Nevada casinos has socked one of the state government's biggest sources of income: gambling.
"People's perceptions of their net worth have dropped, and they continue to be bombarded by media saying everything is headed south, which affects consumer confidence," says Reese Tietje, chief planner of the Nevada Department of Administration.
Besides dwindling sales-tax receipts, Mr. Tietje reports that what Nevada's government has collected from gambling operations was off 4.41 percent in August 2006 compared with August 2007 – nearly $50 million in just the month of August. Nevada has announced a freeze for all state hires and is asking every state agency to reduce its budget by 5 percent. Those include cuts of $50 million for the Department of Health and Human Services and $30 million by the state university system.
California signs deal to expand gambling
Part of Nevada's reduced gambling income and tax receipts comes from changes next door in California, observers say. When times get tough, many stop crossing the border to gamble in Las Vegas's ritzy casinos, opting instead for smaller Indian casinos in their own area. California Gov. Arnold Schwarzenegger (R) recently signed a pact with Indian tribes that will expand gambling in the state in an effort to close a $6.1 billion budget deficit. Such operations are expected to produce $9 billion in revenue for the state's treasury over 20 years.
Besides scrambling to cut corners, states expect to tap into rainy-day funds, but they won't have the option of billions in tobacco-company settlements that helped to bail them out when things started getting tough in 2001. One-time fixes, however, will not be enough to bail out many states.
Michigan, for one, is struggling with a poor economy, resulting mostly from losing 300,000 auto industry jobs in the past seven years. After failing to close a $1.7 billion gap by Oct. 1, the state government partially shut down. The legislature helped end the shutdown in the early morning by agreeing on two new measures: an expanded sales tax and a rise in income tax. The taxes will cover only about $1.3 billion of the budget shortfall, says Leslee Fritz, spokeswoman for the Michigan State Budget Office.