Declining Home Prices Shrink State Revenues, Face Deficits in 2011Nov 23rd, 2010 | By Rob | Category: DS Feature, Market Synopsis, U.S.
In the United States, state and local government budgets have been suffering the repercussions of the economic downturn that hit the world since 2008. Lagging revenues have resulted from lower property and income taxes as real estate values and the size of the job market precipitously fell for the past three years. Moreover, public spending at local and state levels had been rising, much thanks to the government’s massive stimulus of fiscal appropriations on the state level, supporting and expanding public payrolls for the past year. Now the government assistance is drying up and states are left to paddle their own boat.
States Facing Deficits in 2010
1. Washington – The state tax collections for Washington is said to be down again. Thus, the state’s budget deficit is said to have increased by about $1 billion. According to the new revenue forecast, it is said that the state will get about $810 million less than what was previously hoped for the next state budget. It has also been said that it will take some time to recover from this situation.
2. California – California perhaps symbolizes the budget crisis because of the massive shortfall that it has faced and the measures the state has been forced to take like worker layoffs and reduction of aids to the university, massive cuts on education and social services. In the last year the state is said to have gone through about $6 billion budget gap. Moreover according to the assumption of the state’s Legislative Analyst’s Office the state may have to face about $20.7 billion budget gap during the next budget.
3. New Jersey – According to reports this state is going to have the third-highest budget shortfall for the financial year 2011, the first two being Nevada and Arizona. There have already been $800 million cuts in the budget. In addition to this, the state’s unemployment fund will have to face about $1.2 billion deficit. This, it is assumed will trigger an increase in tax on the employers.
4. Arizona – Just like California, Arizona too is one of the worse hit states facing mostly the housing crisis. As per the lawmakers, there has been a 30 percent budget gap in this state in the current year.
5. New York – New York is already said to have faced $3 billion budget deficit, which is expected to double by the next fiscal period. As a result Gov. David Paterson delayed payments to schools, hospitals, and cities so as to keep the State finances above water.
Effect of Home Sales on State Budgets
According to the Bureau of Economic Analysis (NAR) in 2009 the median priced home in Washington and California was $336,400 and $548,700 respectively, and the income derived from the sale of a home was $94,748 and $149,564 respectively. In New Jersey the income generated from the real estate industry was $32,463. The median priced home in this state was $360,700 and the income derived was $101,022. The median priced home in New York was $229,100 and the income was $66,785. In Arizona and Nevada the median priced home was $253,600 and $301,100 respectively and the total income derived was $73,369 and $85,633 respectively. However, with the decline in home sales the income of the states too has dropped; negatively affecting state budgets’ top line.
As a result of the deficit, state revenues continue to subside, which will very quickly trickle down to hardships for public employees and a negative consumer demand shift in months to come. In order to cope with this problem, states will have to modernize their revenue system and increase interstate cooperation, but the issues tied to lower revenues may be impossible to ail until employment and consumer demand make sizeable recoveries.
This was a guest post by Jason Holmes. He is a regular writer with Debt Consolidation Care (http://www.debtconsolidationcare.com/) and is also a contributory writer with other financial sites.