Doomier and Gloomier

As GOVERNING's Outlook conference kicked off its second day this morning, attention turned from the localities to the states. But the message was the ...
by | February 4, 2009

Eckl As GOVERNING's Outlook conference kicked off its second day this morning, attention turned from the localities to the states. But the message was the same: Brace yourselves for a long, tough economic crunch.

Right now, states are being hit hard by the slowdown. "We're seeing almost a hemorrhaging of state revenue right now," said Corina Eckl, finance director for the National Conference of State Legislatures. According to NCSL surveys of state budget officers, 40 states are reporting budget gaps for the current fiscal year, and 24 are already projecting budget gaps in excess of 10 percent for 2010. "I find that astounding," Eckl said.

The added challenge is that any turnaround in state economies will lag significantly behind the market rebound. The 2001 recession, for example, ended in November of that year. But the worst years for state budgets were 2003 and 2004, according to Eckl. "So the question now remains, what can we expect for 2011 and 2012?"

Compounding that is the fact that the current economic crunch is more pronounced than previous downturns, said Scott Pattison, executive director of the National Association of State Budget Officers. "We're looking at a much broader recession. You have an unemployment problem as well as the housing and credit crisis. That's going to put a lot of pressure on localities in a way they didn't feel last time." Pattison agreed with Eckl that states won't be out of the woods anytime soon. "We're going to start seeing headlines -- I hope -- about economic recovery by the middle of this year or early in 2010. But we're still going to have a very difficult time at the state level for one, two [or] three years after that."

Not surprisingly, all eyes are on the federal stimulus plan. That injection of money -- depending on what's included and how the package is structured -- will help cushion the blow that states are facing right now.

But regardless of the specifics of the stimulus, we're likely looking at a massive reorganization of the intergovernmental system, said Ray Scheppach, executive director of the National Governors Association. "We're going to see a massive restructuring of the federal-state relationship. There's going to be a move toward centralization of government at both levels as we come out the other side. States are going to come out of this stronger than cities, and the federal government is going to come out stronger than that. We're going to see a real concentration of power in Washington, D.C.  That's where the money's going to be, and that's going to be the power center."

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