Multistate – States Prepare For The ‘Red Wedding’

Every state’s budget has been slammed by the sharp curtailment of economic activity and resulting loss of income and sales tax revenues, coupled with higher spending on unemployment, other social benefits and public health. A few are also victims of the sharp fall in oil prices, with West Texas crude’s benchmark price having plunged from around $61 a barrel at the start of the year, to a brief foray into negative territory in April, before partly recovering to nearly $40 last week. The results are stark. The Center on Budget and Policy Priorities projected a collective $650 billion budget gap for state governments through the next two fiscal years.

This has mainly left it up to governors to rally their states’ fiscal forces. Victory in the coming battle is out of reach; the goal is to survive to fight another day.

There is no bankruptcy option, no government equivalent of Chapter 11 reorganization, to act as a shield. The states have only four tools they can use to patch the gashes in their budgets. They can cut spending, raise taxes, borrow in financial markets, or send a raven to Washington, D.C., with an urgent plea for help.

All of those tools are at the ready. But a particular state’s willingness to use each one is driven largely by its political culture and its chief executive. Unsurprisingly, fiscally conservative “red” states like Florida and Texas – will we ever think of red states the same way after DeSantis’ “Game of Thrones” comment? – are inclined to cut state spending. These states are always inclined to cut spending. Some of the more liberal “blue” states like California lean toward raising taxes, because that is how they typically tilt. Both camps hope Washington will dispatch a dragon carrying barrels of cash to smother the fiscal fire.

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Palisades hudson financial group llc
by larry m. elkin
June 22, 2020