Tag Archive: budget deficits


Source: CBS/ 60 Minutes

By now, just about everyone in the country is aware of the federal deficit problem, but you should know that there is another financial crisis looming involving state and local governments.

It has gotten much less attention because each state has a slightly different story. But in the two years, since the “great recession” wrecked their economies and shriveled their income, the states have collectively spent nearly a half a trillion dollars more than they collected in taxes. There is also a trillion dollar hole iln their public pension funds.

The states have been getting by on billions of dollars in federal stimulus funds, but the day of reckoning is at hand. The debt crisis is already making Wall Street nervous, and some believe that it could derail the recovery, cost a million public employees their jobs and require another big bailout package that no one in Washington wants to talk about.

“The most alarming thing about the state issue is the level of complacency,” Meredith Whitney, one of the most respected financial analysts on Wall Street and one of the most influential women in American business, told correspondent Steve Kroft

Whitney made her reputation by warning that the big banks were in big trouble long before the 2008 collapse. Now, she’s warning about a financial meltdown in state and local governments.

“It has tentacles as wide as anything I’ve seen. I think next to housing this is the single most important issue in the United States, and certainly the largest threat to the U.S. economy,” she told Kroft.

Asked why people aren’t paying attention, Whitney said, “‘Cause they don’t pay attention until they have to.”

Whitney says it’s time to start.

California, which faces a $19 billion budget deficit next year, has a credit rating approaching junk status. It now spends more money on public employee pensions than it does on the state university system, which had to increase its tuition by 32 percent.

Arizona is so desperate it sold off the state capitol, Supreme Court building and legislative chambers to a group of investors and now leases the buildings from their new owner. The state also eliminated Medicaid funding for most organ transplants.

Then there’s New Jersey. It has the highest taxes in the country, a $10 billion deficit and a depressed economy when first-year Governor Chris Christie took office. But after looking at the books, he decided to walk away from a long-planned and much-needed project with New York and the federal government to build a rail tunnel into Manhattan. It would have helped the economy and given employment to 6,000 construction workers.

Gov. Christie acknowledged that’s a lot of jobs. “I canceled it. I mean, listen, the bottom line is I don’t have the money. And you know what? I can’t pay people for those jobs if I don’t have the money to pay them. Where am I getting the money? I don’t have it. I literally don’t have it.”

Asked if this is going on all over the country, Christie told Kroft, “Yes. Of course it is. It’s not like you can avoid it forever, ’cause it’s here now. And we all know it’s here. And the federal government doesn’t have the money to paper over it anymore, either, for the states. The day of reckoning has arrived. That’s it. And it’s gonna arrive everywhere. Timing will vary a little bit, depending upon which state you’re in, but it’s comin’.”

And nowhere has the reckoning been as bad as it is in Illinois, a state that spends twice much as it collects in taxes and is unable to pay its bills.

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Source: CNN

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The chance of a national double-dip recession is hotly debated amid an increasing number of signs that the economic recovery is losing pace, but the risk is particularly troublesome on a local level.

A new report from Moody’s Economy.com singled out 22 cities that are at risk of slipping back into a recession in as early as three months. To come to this conclusion, the economists considered dwindling progress in employment, housing starts, home prices and industrial production. (See the map above for the full list.)

The at-risk cities are spread across the country, though more than half of the cities are in the South, and five are concentrated in the Midwest.

“With chances of a national double-dip recession now estimated at about one in four, several metro areas will probably experience their own downturns in the first half of 2011,” said economist Andrew Gledhill, author of the report.

Private sector hiring has been tapering off in recent months compared to the start of the year, triggering Moody’s to boost its forecast for a national double-dip from a 20% chance to 25% chance.

In the 22 identified metro areas, Gledhill said private sector hiring is particularly sluggish, increasing the chances of a slowdown.

Without a substantial pick-up in hiring, Gledhill said the number of cities in danger of a double-dip recession could grow, possibly reaching the triple-digits.

“There was a time when all 384 metro areas were in a recession. We probably won’t get to that point again, but given the growing risk of another national recession, we’re on the lookout for more metro areas that will be weakening substantially on several levels over the next six months to a year,” Gledhill said.

He added that a handful of metro areas, particularly those that are industrial economies, are also suffering from a recent falloff in manufacturing.

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