Gloomy Forecast for States, Even if Economy Rebounds

The fiscal crisis for states will persist long after the economy rebounds as confront rising health care costs, underfunded pensions, ignored infrastructure needs, eroding revenues, expected federal budget cuts, according to a report issued here Tuesday by a task force of respected budget experts. The problems facing states are often masked by lax budget laws and opaque accounting practices, according to report, an independent analysis of six large states released by State Budget Crisis Task Force. It said that the financial collapse of 2008, which caused most serious fiscal crisis for states since Great Depression, exposed deep-set financial challenges that will worsen if no action is taken. “The ability of the states to meet their obligations to public employees, to creditors and most critically to education and well-being of their citizens is threatened,” warned the chairmen of the task force, Richard Ravitch, a former lieutenant governor of New York, and Paul A. Volcker, a former chairman of Federal Reserve. Report added a strong dose of fiscal pessimism just as many states have seen their immediate budget pressures begin to ease. And it called into question how states will restore services they have cut during downturn, saying that the loss of jobs in prisons, hospitals, courts and agencies have been more severe than in any of past nine recessions. “This is a fundamental shift in the way governments have responded to recessions and appears to signal a willingness to ‘unbuild’ state government in a way that has not been done before,” it said, noting that court systems had cut their hours in many states, delaying actions including divorce settlements and criminal trials. The report arrived at a delicate political moment. States are deciding whether to expand their Medicaid programs to cover the uninsured poor as part of the new health care law, with the federal government pledging to pay the full cost at first. Public-sector unions feel besieged, as states and cities from Wisconsin to San Jose, Calif., have moved to save money on pensions. Washington’s focus on deficit reduction, with big budget cuts scheduled for after fall election, has made cuts to state aid inevitable, many governors believe. If federal grants to the states were cut by just 10%, the report said, the loss to state and local government budgets would be more than $60 billion a year, nearly twice the size of combined tax increases that states enacted during the fiscal crisis from 2008 to 2011. Things are worse than they appear, report contends. Even before recession, Medicaid spending was growing faster than state revenues, and the downturn led to higher caseloads, making the program biggest share of state spending, as states have cut aid to schools and universities. States have not set aside enough money to cover the health and retirement benefits they owe their workers. Important revenue sources are being eroded: states are losing billions of sales tax dollars to Internet sales and to an economy in which consumer spending has shifted from buying goods to buying lightly taxed services. Gas tax revenues have not kept up with urgent infrastructure needs. And distressed cities and counties pose challenges to states (…..)

Link: http://www.nytimes.com/2012/07/18/us/in-report-on-states-finances-a-grim-long-term-forecast.html

Acerca de ignaciocovelo
Consultor Internacional

One Response to Gloomy Forecast for States, Even if Economy Rebounds

  1. Professor Uziel Nogueira says: In 2008 the FED set up a high level meeting in NY to discuss the unfolding financial crisis. A high ranking official from Japan’s Central Bank was the central figure because of his experience in Japan’s financial housing crisis of the 80s. At the end of his speech, and in a typical oriental way of expressing ideas, he used a metaphor to explain what the US could expect from its own financial crisis. According to the Japanese official, every policy measure taken after the financial housing bubble bust was the equivalent of climbing a steep mountain. After the long climbing, they faced an Everest. Since 2008/9, the US economy has climbed a steep mountain. However, as the NYT piece shows, the States and municipalities still face an Everest in years to come. Debt never goes away and disappear.

    http://www.nytimes.com/2012/07/18/us/in-report-on-states-finances-a-grim-long-term-forecast.html

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