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Aftershock to Local Budgets

The September 11 terrorist assault hit state and local budgets hard, but the fiscal impact will vary widely from place to place.

The September 11 terrorist assault hit state and local budgets hard, but the fiscal impact will vary widely from place to place.

States and cities that depend heavily on tourism suffered the most immediate blow, as a plunge in air travel rippled through tax collections at hotels, restaurants and rental car agencies. Florida, which already faced a $265 million budget shortfall before the attack, is bleeding about $1.5 billion in red ink. Some 200 conventions were canceled in Las Vegas alone, costing the city's economy at least $61 million. Tourism in Washington, D.C., was so far down that city officials offered low-interest loans and loan guarantees to tourist- related businesses.

Financing for big infrastructure projects was also affected. Chicago officials had to restructure a $399 million stadium bond because the interest was to have been paid from now-slumping hotel taxes. Bond rating agencies are also watching several airports, including Chicago's O'Hare and Fort Lauderdale-Hollywood International, where debt for construction projects is to be paid from a levy on airline passengers.

The attacks weakened an already ailing economy and that is affecting budgets. Mounting layoffs are eating into income tax revenues in Washington State, where Governor Gary Locke sought $1 billion in budget cuts. Meanwhile, eroding consumer confidence threatens sales- tax revenues. For the time being, local governments dependent on property taxes seem better poised to handle the economic downturn than most states, since real estate prices seem to be holding up, at least for now.

The roaring '90s did leave state and local governments with sizable rainy day funds. The problem is that after September 11, it started to pour. "Whether they can handle both an economic downturn and a collapse of tourism," says Michael Pagano, an expert on local government finance at the University of Illinois-Chicago, "is another question."

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