46 states face budget crisis

TOM HUDSON: Government debt troubles are not confined to exotic locations like Greece and Portugal. There are plenty IOU problems in state capital buildings from Sacramento to Albany and Springfield, Illinois. This month's "Bloomberg Markets" magazine reports 46 states face red ink on their budgets over the next year. Ed Robinson is a senior writer with "Bloomberg Markets" magazine. He joins us from the bureau in San Francisco. Ed, welcome to NIGHTLY BUSINESS REPORT.




ED ROBINSON, SR. WRITER, BLOOMBERG MARKETS MAGAZINE: Thank you, glad to be here.


HUDSON: So we're going to take a look at a map of the United States and when you look at all 50 states, lots and lots of red ink. Only Alaska, Montana, North Dakota and Arkansas are expected to at least be in the green when it comes to fiscal 2011. So how bad is the problem?


ROBINSON: Well, the problem is acute. Forty six states face these shortfalls and all together, the state spending and investment accounts for about 12 percent of U.S. gross domestic product. In the first quarter of 2010, the fiscal problems at the states shaved off about half a percentage point on U.S. GDP. So this is a sizable problem.


HUDSON: Sizable problem for the national economy here. So going forward, as we look at the balance of this calendar year into the first half of next calendar year, clearly you've got lots and lots of states with these budget problems, but 49 states require balanced budgets. So how do you explain the requirement for a balanced budget but yet 46 can't get there?


ROBINSON: Well, a lot of states will end up borrowing. They'll use accounting gimmicks and tricks to forestall some of the problems that they have in the current fiscal year. But what we've seen, this is the second year now, is a lot of cuts, serious cuts to state welfare programs. There have been furlough programs in states like California where public employees have lost about 15 percent of their annual pay. And the cuts just keep coming across the country.


HUDSON: Of course that's only one half of the answer, right, is to cut the spending. The other half of the answer is to try to raise revenues and lots of states have different proposed solutions for that, some (INAUDIBLE) for instance, you take a look at Kansas and New Mexico, for instance. They want to raise state sales tax. In fact they have raised state sales tax beginning this month. Over in the state of Washington, Ed has you know, it is a tax on soda pop. How are other states responding to these problems?


ROBINSON: Well, a lot of other states are not using taxes. California, New Jersey. There, the politics is clearly driving toward the spending side of the ledger. You see in New Jersey Governor Chris Christie, a Republican, he would like to cap property tax expenditure increases at 2.5 percent and in California, Governor Arnold Schwarzenegger, another Republican wants to bring all public employees down to the Federal minimum wage until a budget is passed. So states are really grasping right now for all sorts of moves to cut spending. And in many states, raising revenue through taxes is just not politically palatable.


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