State and local governments should be listed as a primary risk to the US outlook
I don’t see why the aggregate state funding gap is not numero uno on the ‘risks’ to the US outlook (I usually hear oil, Europe, China, etc., in my line of work). According to the Center on Budget and Policy Priorities, the State budget gap is not expected to clear at least through 2013. From the CBPP report “States Continue to Feel Recession’s Impact“:
Three years into states’ most severe fiscal crisis since the Great Depression, their finances are showing the clearest signs of recovery to date. States in recent months have seen stronger-than-expected revenue growth.
This is encouraging news, but very large state fiscal problems remain. The recession brought about the largest collapse in state revenues on record, and states are just beginning to recover from that collapse. As of the first quarter of 2011, revenues remained roughly 9 percent below pre-recession levels.
Consequently, even though the revenue outlook is better than it was, states still are addressing very large budget shortfalls.
Better put: state revenues are rising more quickly than expected from a low base following the most precipitous drop ‘on record’. Not feeling too confident here.
(MORE AFTER THE JUMP)
Whether or not this ‘surge’ will continue depends on the labor market, corporate profits, and retail sales – heck, aggregate demand. There’s an obvious connection between retail sales and state sales tax revenue, and retail sales are weakening. In May, the pace of the 3-month moving average of retail sales slowed to 0.27% (from a peak of 1.09% in October 2010), while that of real retail sales fell 0.11% over the month (raw data here). Lower gas prices will help; but without significant relief in the labor market (from the private sector), the pace of revenue growth is unlikely to be maintained.
It’s not just the states – the health of state and local government’s (or lack of) matters A Lot for the US economy.
On average, state and local governments jointly are the largest single contributor to aggregate compensation in the 1990’s and 2000’s (roughly), according to the Bureau of Economic Analysis.
Since 1987, State and Local governments have accounted for an average 13% of total compensation of the US economy. So the outlook for 13% of aggregate compensation essentially depends on jobs growth in these sectors.
The trend for job growth has been decidedly negative for state and local governments. State and local governments have net-fired workers every single month since November 2010.
State and local governments are doing something they’ve not or rarely done before: hinder nonfarm payroll growth. In May 2011 (the latest data point), state and local governments dragged annual total payroll growth by 2% and 20%, respectively. Local government payroll was 11% of the total in May. This is not good.
Federal government support to state and local governments is set to decline significantly next year (see figure 2 on html of CPBB report). So it’s up to the private sector to provide sufficient income growth to offset the likely decline (latest data is 2009) by the giant of aggregate compensation, state and local governments, for years to come. I’m skeptical.
also: sales tax revenues will continue to impacted as people gradually shift to more online shopping…ARRA funds for the states have run out…& the decline in housing & commercial property prices has started to translate into declining property tax revenues (said to have a 3 year lag)
This is the first time ever seven quarters into a recovery that state and local expenditures are down.
Thanks for reminding us of this aspect of a ‘recovery’ Rebecca. There is such variability for local and state conditions overall, and such variability within each state, that there is no ‘storyline’ that can be headlined, other than on an anecdotal level perhaps. Aggregate data demands patience.
rjs breaks some of the data down into components reported more frequently, but not overall that I am aware of.
The US states and US local governments are the European PIGS equivalents : they cannot print their own money and their ability to pay overpromised and often very unreasonable entitlements (125K pensions) is collapsing.
Does the macroeconomy and its most lumped essential of credit, assets, and debt operate in a highly predictable patterned timed fashion relegating the operating laws of the system to be equivalent to physic’s empirically observed gravitational laws?
Saturation macroeconomics has identified the laws that cannot be operating by chance alone.
24 June was day 249 of a 100/249/249 day x/2.5x/2.5x three phase maimum growth series for the composite Wilshire. As of 25 June 2011 the expected nonlinear decay for the Wilshire is 8/15 of 20 days/19-20 days y/2.5y/2.5y.
I suppose this may sound ignorant, but why haven’t the county assessors in all states not put a lien on each property for back taxes, fees, recording or otherwise? Don’t they have that in their power to do?
I should clarify: the properties that are in limbo, foreclosure stagnant, etc.
What recovery? Why, the Wall Street and Big Finance recovery, of course.
all i really do is collect the news stories on various aspects of state & local budget problems; while i may see 20 links a week, i dont really do much analysis…
here’s a perspective of the state troubles that’s rarely reported on…
Illinois Stiffs Vendors From Mortuary to IBM as $4 Billion Debt Piles Up – In Illinois, you’re never too big or too small to get stiffed by the state, which is $4 billion behind in its bills. International Business Machines Inc. is owed $1.1 million. Office Depot Inc. (ODP) is waiting for a $660,955 check. And the 17th Street Bar & Grill in Sparta is due $340.52. They are among at least 8,000 vendors including businesses, charities and government agencies waiting months for the state to pay up. At least 114 companies are due more than $1 million, according to documents from Illinois Comptroller Judy Baar Topinka. While states periodically fall behind in paying Medicaid providers or, in the case of California, rely on bank loans and IOUs, the Illinois backlog has been growing for three years. It’s forcing some vendors to fire workers, cut services and, if they can, obtain loans and lines of credit to keep their businesses going while the state takes months to pay.
while illinois is likely the worst case, it wouldnt surprise me if this were more widespread than reported…& it strikes me that all these unpaid bills are carried as an asset on someones balance sheet…but at the end of the day, the 17th street bar & grill cant pay their employees with an accounts receivable…
Got a link for your weekly newsletter? You highlighted a slew of state budgetary cutbacks that are likely to be followed by many, many more.
I don’t have an answer to this – but taxes at the state and local level are certainly on the rise. As theeconomicfractalist highlights above, states cannot ‘print’ money, so are bound by the identity that spending equal income. My property taxes have increased despite the fact that the assessed value of my home declined (in Boston).
Hey Mark, got a link? I suppodse that the CPBB may have similar data?
my js-kit profile links to both of my primary blogs (hover over it)
i aggregate the stories at this one: http://globalglassonion.blogspot.com/; i started including state story links early in 2010
every week it’s something different – the past week’s main stories were jerry brown’s budget veto in california, and the pending state shutdown in minnesota – in general, state topics on this blog follow the unemployment links in this sequence: state unemployment benefit cutbacks, general budget problems & or gridlock; major municipal cutbacks, education cutbacks, pension funding, and medicaid cuts…
my “newsletter” is emailed every sunday morning to anyone who requests it, so anyone who wants that can contact me
Definitely contact rjs; I highly recommend his newsletter! It’s very informative and rather broad in topic coverage. Plus he hits similar topics each week, so I know what to look for (plus extras, of course).
What we all need to do is to quit reading state and local government media releases. Most of the alleged “budget shotfalls” are a bunch of smoke and mirrors. Look at the end-of-year, total spending — not the budgeted amounts — from each governmental body’s financial report, and you will find that many, if not most, of those supposed “stressed” governments spent more year over year without any letup, even during the peak recession years.
The fact is most governments don’t have a revenue problem. They can’t pay their bills because they have a spending problem.