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Dec 24, 2009, 05.05 PM IST | Source: Reuters

US states brace for 2010 as recovery elusive

State lawmakers across America are bracing for another bumpy year as job losses and anemic consumer spending that ravaged 2009 tax collections show little sign of significant improvement.

US states brace for 2010 as recovery elusive

State lawmakers across America are bracing for another bumpy year as job losses and anemic consumer spending that ravaged 2009 tax collections show little sign of significant improvement.

States tackled a collective budget deficit of nearly USD146 billion heading into fiscal 2010, which for most began on July 1, according to the National Conference of State Legislatures. New gaps totaling USD28.2 billion have since opened up in 36 states and economists say there's more pain to come.

Lawmakers should keep their pencils sharpened. The non-partisan Center on Budget and Policy Priorities is expecting the combined deficits for fiscal 2011 and 2012 to come to USD260 billion, after taking into account the remaining stimulus funds available for fiscal 2011, about USD40 billion.

For all the pain, ratings agencies are not expecting a sharp increase in municipal debt defaults or bankruptcies due to the ability of governments to cut spending and seek new revenue sources.

"Even if the recession is over, state budgets are still in appalling conditions and are going to be that way for quite a while," said Corina Eckl, NCSL fiscal director in a December report. "For many states, revenue recovery is not even in the forecast."

Yawning deficits as spending outstrips revenue in the recession have forced lawmakers back to the drawing board for ways to balance budgets as required by law in all states except Vermont.

At least five states -- New York, New Mexico, Arizona, California and Connecticut -- have called special sessions to address budget gaps in the last month, disrupting what is traditionally a quiet time in state capitals.

"State budget gaps will continue to be significantly larger than in the last recession, and last longer," said the Washington think tank.

States slashed spending on health care, education and welfare services, hiked fees and taxes, and used stimulus funds to close gaps in 2009. Some were more creative -- Arizona sold government buildings and leased them back. Hawaii reduced its school year by 17 days to save money.

"Governments have faced and, we expect, will continue to face budget gaps that will force them to make tough choices," said Standard & Poor's analyst James Wiemken.

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