The heavy dependence on the housing market and construction in Georgia appears to be deepening the economic downturn. Unemployment applications jumped in September, the second highest in the nation, and Georgia suffered the sixth straight month of job loss. At the same time, Georgia’s unemployment rate at 6.5 percent is above the national rate of 6.1 percent. As readers might suspect, the current situation in the housing and financial markets has exacerbated the budget crunch that other southeastern states were already feeling.
The state, after three months, is 2.6 percent behind last year. Although this figure includes the 1 percent reduction, the projected budget cuts of 6, 8, and 10 percent that departments are being required to put on the table are beginning to look more and more as not a projection but as the next stage of reality. And some doomsdayers are concerned we are approaching a slowdown of mythic proportions, perhaps to the pre-2002 levels.
A previous July column titled “Misery Loves Company” could use some updating to judge how other states are faring in relation to Georgia. At this time, 21 states and the District of Columbia are facing budget shortfalls in their FY09 budgets. Other sources such as The Center on Budget and Policy Priorities report that 25 states have shortfalls ranging from 22 percent in California to 1.3 percent in Colorado. Georgia is 11th at 8.7 percent.
Around the Southeast
North Carolina missed its revenue goal by $230 million in the first quarter of FY09. Last month, Gov. Mike Easley indicated that he would be withholding 2 percent of agencies’ budgets and putting the money in a reserve. More recently, given the worsening fiscal situation, the governor has said that he might increase withholdings to 3 percent of agencies’ budgets. The governor wants to reduce the state’s budget by $600 million dollars; however, the governor is exempting funding for public education, student loans or Medicaid from the proposed cuts. In North Carolina, K-12 education accounts for $7.8 billion, which is over one third of the state’s budget.
This week, South Carolina legislators have convened in a special session to cut nearly $500 million from the state budget or 6-7 percent of the state’s $7 billion budget. The current version of the budget being debated does not substantially cut classroom spending, but does reduce the Department of Education’s payroll expenses at its headquarters by 15 percent. Higher education overall will face $100 million in reductions. South Carolina’s Health and Human Services department will be cut by $76.7 million and the Department of Mental Health will be cut by $23.6 million. Aid to local governments will be decreased by $19.5 million and the Department of Disabilities and Special Needs will decrease by $21.5 million.
Virginia faces a budget shortfall of $2.5 billion over the course of their 2009-2010 biennial budget. To provide for a little over $1 billion of this amount, this month, the state’s governor, Tim Kaine, proposed laying off around 570 state employees and reducing funding for colleges by 5-7 percent. In addition, over 800 vacant jobs would be left unfilled, pay raises for public employees would be postponed, and $250 million in construction projects originally funded in cash would be funded through state-issued bonds. Gov. Kaine also wants to use $400 million from the state’s rainy day fund to cover the shortfall.
The state’s FY09 budget was $6 billion less than the budget for FY08. The FY09 budget resulted in 200 job losses, tuition increases for university students, cuts to nursing homes and the closing of 13 driver licensing offices. Despite the cuts already taken, the state is seeing its current year revenues come up short. Florida’s governor, Charlie Christ, has told state agencies to prepare for 10 percent across the board budget cut. Gov. Christ has launched a plan called “Accelerate Florida,” which fast tracks $30 billion in infrastructure and public works projects. The idea is to stimulate the state’s economy by fast tracking construction projects that will pick up the state’s construction industry and reduce unemployment.
Another state of interest
California’s situation is unique, as the state is actually facing a cash flow crisis. California normally borrows between $1 billion and $12 billion in short term loans (called commercial paper) per year to fund operations prior to receiving tax payments. Because credit markets have frozen up, California expected to run out of cash at the end of October. Gov. Arnold Schwarzenegger has said that he will have to turn to the federal government for the $7 billion if the credit crisis prevents the state from getting a commercial paper loan.
Continued focus on retirement funds
This column will continue to provide information on the State Retirement System and the Teacher Retirement System and look at other state’s handling of retirement funds as information on the market losses becomes available. This much is undeniable; we have already entered into a “Twilight Zone” of financial uncertainty that is unprecedented in modern times.