All states except vermont are obliged law balance budgets

June 26th, 2010|Sasha James
State

Cash-poor states could shift more of the costs for social programs, such as childrens health and welfare plans, to localitiesjust when they can least afford it.

Counties, villages, cities and the like typically get 60 percent of their revenue from their own property taxes and the states, Goldman Sachs said.

But the housing markets fragile state and political concerns may prevent localities from raising property taxes, it said.

State tax revenue rose 2.4 percent in the first quarter of this year to mark the first year-over-year rise since the third quarter of 2008, according to the Rockefeller Institute.

But state revenue actually fell 2.1 percent if the effect of tax hikes is taken into account, the report said.

State and local spending has been a weak spot in the recovery, with real spending down 1.7 percent since the recession trough, the only instance of a real decline at this point in the recovery, Goldman Sachs said.

Direct spending by counties, cities, towns and the like totaled 1.252 trillion in 2007, topping the 917 billion the states spent, Goldman Sachs said, according to U.S. Census Data.

Together, spending by states and localities was around one-seventh of the nations Gross Domestic Product of just over 14 trillion in that year.

This year, many states were counting on billions of dollars of extra Medicaid dollars from the federal government. But Senate Democrats could not muster enough votes to break a GOP-filibuster late on Thursday on a plan that would extend Medicaid stimulus funds and unemployment benefits.

This will put even more pressure on the states, which were expecting revenue shortfalls of 560 billion in the 2009 to 2013 period, Goldman Sachs said.

Reporting by Joan Gralla Editing by Andrew Hay source