First, it was Wall Street that got hit hard. Then it moved to corporate America. Unemployment rose and recession set in. The last to get hit in these economic downturns are state and local governments. And there are indications that more is to come on that front.
The U.S. Census Bureau was out with a report today that showed just awful state and local government tax revenues. Click here for the summary report. Individual income tax receipts were down 11.7% in the third quarter from a year ago. General sales tax receipts were down 9%. Corporate income tax receipts were down 18%. Somewhat surprisingly, property tax revenue, the big driver of local government revenues, was up 3.5%. One has to believe, though, that as residential home foreclosures work their way through the system and more commercial real estate problems surface, this revenue source comes under pressure as well.
All of which is to say: we may have avoided a financial meltdown and we may be on our way out of a recession. But state and local governments have some very hard decisions to make. They can’t raise taxes and wil have to cut costs. And that means elimination of popular programs and perhaps even jobs.