Nine states seen in peril similar to California: report

By Lisa Lambert

WASHINGTON (Reuters) - California, the Golden State that has been pummeled by economic problems ranging from plunging revenues to political spending battles, may soon find that it is not alone.

Arizona is next in line to suffer some of the same troubles, followed by Rhode Island and Michigan, according to a study released by the Pew Center on the States on Wednesday.

Oregon, Nevada, Florida, New Jersey, Illinois and Wisconsin round out the list of the 10 states with the worst economic decay, the Pew Center said in the report, "Beyond California: States in Fiscal Peril."

Pew's conclusions are drawn from an analysis around the experiences of California, which ranks as the world's eighth largest economy, during the recent recession, the longest and deepest since the Great Depression. The study looked at how a surging foreclosure rate and rising unemployment led to a steep fall in California's revenues, with the state's political structure and record of poor fiscal problems crippling the ability to respond to the crisis.

Pew said the nine other states in its top-10 list "face hardships nearly as daunting."

Arizona, also hurt by the housing downturn, has been "hamstrung by voter-imposed spending constraints, a tax structure highly reliant on a growing economy and a series of tax cuts."

The recession did not discriminate among states, and has left most gasping to cover spending needs. While recovery is spreading in the national economy, most experts do not expect states' finances to heal any time soon.

On Thursday, the National Governors Association and National Association of State Budget Officers will release a snapshot of U.S. states' economic conditions. In the past, they have said they do not anticipate the recession ending for most states until after 2010.

Still, one state not typically identified as exceptionally troubled is the Midwest's Wisconsin.

"To most, Wisconsin does not seem to have the same problems managing its money as California, its dairy rival," said Pew. "But the recession has hit Wisconsin harder than most state governments, especially when it comes to lost tax revenues and the size of the hole in its budget."

The other nine states may not follow California into the financial void, but they still share four common problems.

Like Michigan and its reliance on the automobile industry, many have relied on one sector to prop up their economies. Many also have had histories of budget shortfalls even in the best of times and their lawmakers have been limited in raising revenues.

"Several states on the top 10 list were unable to muster the political resolve to make long-term fixes to their fiscal problems," the study said.

(Editing by Leslie Adler)