States Face Cash Shortage, Longer DMV Lines?

Sept. 6, 2007— -- State governments look to tighten their belts as revenues decline for the first time in several years — a sure sign that consumers across the country are facing economic difficulties.

With less money, states are most likely going to have to cut back on some of their services.

This means potholes on highways might not be repaired, longer lines at the DMV, and maybe, fewer teachers in your local school district.

Sales and income taxes are coming in lower than expected in several states, causing state leaders to take another look at their budgets, and make a number of cuts.

Florida, California, Virginia, and Arizona are just some of the states struggling with their budgets.

"We're beginning a downtrend, and that some of these states are just feeling it earlier," said Scott Pattison, executive director of the National Association of State Budget Officers. "I think it indicates some overall slowing, economically."

Like just about everything else with the economy these days, a lot — but not necessary all — of these problems can be tied back to the housing market.

Corina Eckl, fiscal program director at the National Conference of State Legislatures, said the budget crunch is being caused by a mix of issues.

"The sales tax certainly sticks out as a collection source that is a little bit shaky. Some of that is based on what is happening in the housing market," Eckl said. "When people aren't buying as many homes or remodeling, there aren't those big purchases of consumer durables, like refrigerators and stoves, and all the things you want to furnish your house with."

Another factor is generally higher gas prices, which has led some consumers to cut back on discretionary spending, such as meals out, or money spent on lottery tickets, and other forms of gambling, Eckl said.

But, sales tax seems to be the leading problem.

Take Florida, which doesn't have a personal income tax, and relies heavily on sales taxes. Its housing market has also been hit particularly hard by problems in the mortgage industry, leaving homeowners with less spare cash.

The state expected $27.2 billion in revenues for the fiscal year that ended June 30, according to Florida's Office of Economic & Demographic Research. But, Florida took in a lot less in cash — $383 million less than originally forecast.

Since the state's budget was passed on that forecast, the state legislature is now coming back into a special session to figure out what expenses to cut.

"We might be at the beginning of some serious problems, and Florida is a precursor," Eckl said. "Florida tends to be a bell-weather state."

Sales tax has been a big culprit of Florida's problems. In June alone, collections were off by 3.8 percent.

This is a big turnaround for states that have seen robust revenue growth in the last three or four years. The better-than-expected growth meant that state budgetmakers were free to spend on added projects. But now that the money source appears to be drying up, they will have to scale back.

A very small percent of most states' budgets come from conveyance taxes, collected when a property is sold.

But, local communities might be more directly impacted.

Most cities and towns across the country rely on property taxes as their main source of income. If homeowners struggle to pay their mortgages, chances are they aren't paying their property taxes, either. If collections fall, everybody else in town will have to pick up the slack.

Pattison notes that there is no trend or geographic pattern. He said it is a general slowing that we will know more about in the coming months.

Still, this decline is nothing like the budget problems states faced immediately after the Sept. 11, 2001, terrorist attacks. Most states had to make dramatic budget cuts back then in order to balance their budgets.

"It's kind of a sputtering," Pattison said, "rather than any dramatic crashes."