Struggling States Are 'A Drag on the Economy
Posted on Mon, Mar 22, 2010
Tough decisions must be made.
The Pew Center recently reported that 10 states - Arizona, California, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island, and Wisconsin - are barreling toward economic disaster. Double-digit budget gaps, rising unemployment, and high foreclosure rates are just some of the reasons.
People who are re-entering the workforce are taking an average 40% pay cut from their previous jobs, estimates Kenneth Couch, an economics professor at the University of Connecticut, based on the experiences of Connecticut residents during the 2001 recession and on other studies during the 1981 recession[1]. In the past, Couch said it has taken six years before people were earning an average of 80% of their old paycheck with younger workers creeping closer to their old wages more quickly than older workers.
Foreclosure starts, as reported by the Mortgage Bankers Association and other data from the Center for Responsible Lending, indicate that foreclosures in most states will more than triple during the next four years, reaching a total of 8.1 million foreclosures.
Throughout the country, states filled 30-40% of their budget gaps for the current fiscal year with federal stimulus money. They were allotted about $250 billion of the $787 billion stimulus package, most of which will be distributed by the end of next year. Without more federal help, state budget cuts will shave nearly a percentage point off the nation's gross domestic product growth. The cuts also will eliminate roughly 900,000 jobs in fiscal 2011, according to The Liberal Center on Budget and Policy Priorities.
"The problems are evident from coast to coast," said Mark Zandi, chief economist for Moody's Economy.com. "Without more help to state and local governments, the resulting budget cuts will become a very significant drag on the economy."
So, how can the country dig out of this hole? Ideally, the best way is to grow out of it. Strong economic growth may help individual states and the country as a whole stop the red ink. Of course, the government is aware of this and they're trying to do what they can. Unfortunately, the government's hand is somewhat limited because of budget concerns.
Ultimately, there are no simple solutions to our economic malaise. It may take time and even more pain before we get back on sound financial footing.
The above material was prepared by PEAK
[1] http://www.ombwatch.org/node/1541