Mark Zandi: State Fiscal Outlook is "Dark"

Mark your calendars, everybody: Feb. 11, 2011. That's the day Moody's.com economist Mark Zandi says the economy will shift from financial recovery to a &...
by | February 3, 2010

Mark your calendars, everybody: Feb. 11, 2011. That's the day Moody's.com economist Mark Zandi says the economy will shift from financial recovery to a "self-sustaining expansion."

Zandi, who keynoted Governing's Outlook 2010 conference today, has a good track record with these things. When he spoke at last year's Outlook conference, he accurately predicted -- to the day! -- when the recession would end and economic recovery would begin (Sept. 15, 2009, for those of you keeping score.)

But while the economy may be in a period of recovery, and while it may be expanding a year from now, states and localities are (as my father used to say) still in for a world o' hurt. "The recession is over, but the recovery will be a bit of slog," Zandi said, calling the situation for state governments "dark."

Zandi praised the role that the government played in mitigating and ending the recession. "The end of the recession, in my view, is largely due to the policy response," he said. One of the most important policy elements, Zandi said, were the bank stress-tests conducted last spring. "That was a successful effort at reestablishing confidence. They were more than symbolic; they were substantive."

The other major policy element, of course, was the federal stimulus. "I don't think it's any accident that the recession ended at the same time the stimulus was delivering its maximum impact" in the states, he said. States and localities have certainly had a tough fiscal year, Zandi said, "but it would have been a complete mess without that stimulus money."

Whenever the economy does being expanding again -- be it 2/11/2011 or not -- states and municipalities still will have a long way to go before they're back in the black. Lagging unemployment and property taxes will continue to put pressure on public-sector revenues long after that. And once the financial house is somewhat in order, governments will have to turn their attentions to the persistent structural deficits they face.

Still, in a conference that's been full of doom and gloom, the mere idea of a date for the inkling of the beginning of a turnaround counts as good news.

Zach Patton  |  Executive Editor
zpatton@governing.com  | 

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