Economic downturn jolts state finances: report

By Lisa Lambert

WASHINGTON (Reuters) - The U.S. economic downturn continues to jolt states, with some appearing to be in a recession as their revenue deteriorates, according to a budget report released on Friday.

"Whether or not the national economy is in recession is almost beside the point for some states," said William Pound, executive director of the National Conference of State Legislatures, in a statement about his group's Spring State Budget Update. "The fiscal situations have declined so much in some states that they appear to be in a recession."

Revenue is dropping in most states, forcing lawmakers to make tough choices to balance their fiscal year 2008 budgets. At the same time, they are struggling to draft fiscal 2009 budgets with a rocky future in sight.

Currently, 16 states and Puerto Rico are reporting they will have budget gaps for fiscal year 2008, more than double the number that said they would have shortfalls in November. For fiscal 2009, 23 states and Puerto Rico are projecting budget shortfalls, the bipartisan organization found.

Twenty states said their personal income tax collections were on target for fiscal 2008, but half of those had reduced their forecasts. And 12 states said the collections were below target, even in cases where forecasts were reduced.

Sales tax and corporate income tax collections were below forecasts in 16 states.

HOUSING SLUMP'S HEAVY TOLL

Across the country, the health of states' economies is uneven, with a few flourishing, the report said.

"For energy-producing states, the fiscal situation is strong and the outlook is good. But that situation is in stark contrast to states where the housing sector slump has been particularly severe or other fiscal challenges have prevailed," Pound said.

The association polled state fiscal offices on how their state was faring. Florida, for example, said its current problems were unprecedented in the last 40 years.

While states like Florida, California and Nevada are at the epicenter of the housing decline, other states also reported uncertain times.

For Delaware, "the outlook is grim and rectifying it will require unpopular measures in both revenues and appropriations," the report said.

In Illinois, "resulting budgetary difficulties continue to build" from "continued pension funding pressure and bills incurred but unable to be paid."

Budget cuts and legislation have balanced Kentucky's budget, but "weak revenue growth ... continues to be a concern."

And while the Kansas economy "seems to be stable," the national downturn is "expected to have a negative impact, or slowing effect, on it."