Everyday when I turn on the news and there is another story about some company who has to lay off workers as a result of the worsening economy. On Black Monday, Home Depot, Caterpillar, Sprint Nextel, Microsoft and seven other companies announced that they would be cutting over 75,000. This is going to have an enormous effect on state budgets because the state has now lost personal income tax revenue because people aren't working, sales tax revenue is going to decline because people aren't going to be spending money. Conversely, the state must now add the expense of paying unemployment insurance. The end result is that the state's budget deficit is growing which will eventually lead to increased taxes and programs being cut. Last I heard was that my home state of Connecticut is forecasting a 900 million dollar deficit.
States are facing a great fiscal crisis. At least 45 states faced or are facing shortfalls in their budgets for this and/or next year, and severe fiscal problems are highly likely to continue into the following year as well. Combined budget gaps for the remainder of this fiscal year and state fiscal years 2010 and 2011 are estimated to total more than $350 billion. That is half of the bank bailout, and 43% of the economic stimulus package. No wonder President Obama and other economist say that it will get worse before it gets better.
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