Read It Here First: States’ Impact on Economy

Last month, we discussed States and Cities Impact On GDP. They account for about 12.5% of total US GDP.

The Sunday NYT had a related article in the Week in Review: Think the Economy Is Bad? Wait Till the States Cut Back. Here’s an excerpt:

"Struggling as we are with the housing bust, the credit crunch, shrinking consumption, rising unemployment and faltering business investment, we can be forgiven for thinking that all the big shoes have dropped. There is another one up there, however, and it is about to come down.

State and city governments have yet to shrink the economy; indeed, they have even managed to prop it up. They have quietly maintained their spending at pre-crisis levels even as they warn of numerous cutbacks forced on them by declining tax revenues. The cutbacks, however, are written into budgets for a fiscal year that begins on July 1, a month away. In the meantime the states and cities, often drawing on rainy-day savings, have carried their share of the load for the national economy.

That share is gigantic. At $1.8 trillion annually in a $14 trillion economy, the states and municipalities spend almost twice as much as the federal government, including the cost of the Iraq war. When librarians, lifeguards, teachers, transit workers, road repair crews and health care workers disappear, or airport and school construction is halted, the economy trembles. None of that, or very little, has happened so far, not even in California, despite a significant decline in tax revenue."

Previously:
States and Cities Impact On GDP (May 2008) http://bigpicture.typepad.com/comments/2008/05/states-and-citi.html

Source:
Think the Economy Is Bad? Wait Till the States Cut Back
LOUIS UCHITELLE
NYT, June 1, 2008
http://www.nytimes.com/2008/06/01/weekinreview/01uchitelle.html

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What's been said:

Discussions found on the web:
  1. mike commented on Jun 2

    http://www.chicagotribune.com/news/chi-ap-il-roadkill-highways,0,7676009.story

    IDOT: Less roadkill to be picked up along highways
    Associated Press
    3:34 PM CDT, May 30, 2008
    CARBONDALE, Ill.

    The view along Illinois highways for at least part of this summer should be beautiful — for the turkey vultures.

    The state’s transportation department says it won’t pick up as much roadkill left along roads because it spent more than twice the allotted $40 million over the winter on clearing ice and snow removal.

    Dead animals in driving lanes and any deemed hazardous to motorists will be removed. But much of the rest will be left for scavengers.

    The Jackson County Health Department says the roadkill shouldn’t lead to any health risks.

    IDOT spokesman Mike Claffey says the department has asked for $20 million in additional funding in a supplemental appropriations measure being considered by state lawmakers.

    The new budget year starts July 1st.
    Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

  2. Mike in NOLA commented on Jun 2

    This is less significant than you think. It is far outweighed by all those multinationals raking in the bucks.

    According to Jerry Bowyer of Kudlow & Co., we should be using GNP instead of GDP because that would give us more favorable numbers. Don’t want to be negative, ya know.

    http://www.cnbc.com/id/24922152

  3. Stuart commented on Jun 2

    I’m reviewing some comments from David Walker and Fed Governor Fisher and wondering about these $62 Trillion (present value) of unfunded entitlements that have already started to come due and the rapidly escalating pressure they will place on the fiscal deficit, already unmanageable. Listening to all other economic discussions and debates on various networks, many blogs, newspapers etc…, many in themselves legitimate discussions, others just speculative conjecture, it strikes me its like a group of doctors and interns discussing a patient’s hang nails, sprained ankles, warts, bad breathe, body odor, gas pains and other bodily ailments all while ignoring the metastasizing BRAIN TUMOUR. The patient is about to be placed on life support. Jesus murphy. Nice day all….

  4. DL commented on Jun 2

    Municipal bonds could face a double whammy: (a) credit downgrades, and (b) higher inflation.

  5. Mr. Obvious commented on Jun 2

    Mike in NOLA beat me to it….Bowyer says everything is hunky-dory, you negative nillies.

    First Mike: I was just commenting on the number of road kill on a trip from Western PA to Western OH. I have a feeling that a number of states are cutting back on roadkill removal.

  6. ajw commented on Jun 2

    Anyone wanting a better perspective on those pesky unfunded future liabilities coming home to roost (a big factor in local governments’ pending financial disaster) should check out Roger Lowenstein’s ‘While America Aged’.

  7. Sinomania! commented on Jun 2

    Where I spend my days (transit agency, California’s 2nd largest city) the RIF is on and there’ll be no pay increases – not sure if that is state wide but the fun is about to begin here in So Cal. My neighborhood is a forest of for sale, bank owned, foreclosure auction, signs with more popping up each weekend. Open house across from me this weekend got one look, agent packed it in early. I thought So Cal had hit bottom but doesn’t look that way.

  8. Sluggo commented on Jun 2

    Guys pass the roadkill helper!!!

  9. John Borchers commented on Jun 2

    I’m already seeing cuts. Gov’t cutbacks are big for next year and this year.

    My wife in gov’t employment only getting paid for 4 out of 5 days this year.

    Next year 11 out of 12 months pay.

    It’s going to be tougher than many people are expecting.

  10. Noodles commented on Jun 2

    Work for the State of Cali…So much fat to trim on this hog…Most state workers even myself at time are not worth the $…I say bring the bitter with the sweet.

    I did #’s for a business before and if I was a bean counter I would chop so many things within the Department of Corrections…Easily could be run with 25% less staff.

    Love my country but harsh choices have to be made…If you don’t flick off the usless then they sink the whole boat.

    I truely believe in the Darwin’s Theory…Let the useful survive as for the rest…Sorry but improve or be prepared to be gone.

  11. engineer al commented on Jun 2

    We won’t be in a really deep hole until we begin to see otherwise healthy people poking through other’s garbage for “lunch”. When we begin to see that kind of thing, we’ll finally know for certain America is turning herself upside down.

    http://www.kansascity.com/105/story/645181.html

    Until that day arrives, party on. Bushboom.

  12. michael schumacher commented on Jun 2

    right on cue the “mysterious buys” in the SPY show up and everyone on TV is puzzled as to who or what.

    Disgustingly ridiculous

    Ciao
    MS

  13. J.B. commented on Jun 2

    I hate to be pedantic, but I actually read it here (Megan McArdle) first. She had her piece up at 9:33am from D.C. to your 2:00pm from N.Y.

  14. me commented on Jun 2

    Atlanta Mayor Shirley Franklin announced Wednesday that she was laying off 441 city workers and eliminating 347 vacant positions as part of her plan to balance the fiscal 2008-09 budget, which has a projected $140 million shortfall.

    Franklin also has proposed a property tax increase to raise $40 million to help address the shortfall for the budget that starts July 1. Some City Council members have said they will try to find other ways to cut $40 million from the budget to avert a property tax increase.

    http://www.ajc.com/search/content/metro/stories/2008/05/06/atllayoffs.html

  15. pikertrader commented on Jun 2

    this was mention in Panzers book that cities wouldn’t be able to keep cops and the police force

  16. Vildan commented on Jun 2

    I work for the State of Virginia, and while there is dire speculation among some employees (probably from reading CNN and blogs like this,) we just got notice of a 3.5% salary increase starting in July. I was signed up for two classes that this summer out the wazoo making $12 per hour. Also, in my neighborhood, there are a number of houses currently under construction, and people still seem to be buying.

    Is Virginia just behind the curve on the economic slowdown?

    I also must say, I remember gloom and doom scenarios from the 70’s and 80’s that never materialized. I specifically remember a book called “How to Survive the Coming Depression of the 90’s.” And, while I own a book about the fall of the dollar (but can’t say I have actually read it), I noticed that it was written a full 5 years ago. My point is, I have been worrying myself into an ulcer with all of this, but maybe financial armageddon is not around the bend, or rather, it always has appeared to be, but never materializes. Or maybe it has just been a slow, slow train that is just now pulling into the station.

  17. flubber commented on Jun 2

    States and cities are 10% of GDP? Anyone think they cut, en mass, 10% of their budgets? I doubt it. 5% tops, more likely just stopping the rate of growth. A .5% reduction in GDP growth, or less.

    Nothing to sneeze at, and another piece of the pie… but not huge.

  18. ajw commented on Jun 2

    J.B., I thought Barry’s point was that he had already blogged about this issue a month ago. If you really want to be pedantic then by definition the Times article was by definition first.

  19. Pat G. commented on Jun 2

    Repeat after me; Legalize pot, tax it as a luxury item then make sure that money was spent well. Had you going there for awhile didn’t I?

  20. cas127 commented on Jun 2

    Funny how the cries of Keynesian intervention only run one way –

    *THE ECONOMY IS SLOWING DOWN SO WE MUST – MUST I TELLS YA – SPEND MORE MONEY VIA GOVERNMENT! – TO SAVE THE ECONOMY!*

    But when the economy is booming, our disgusting political class works the other side of the gutter.

    *THE ECONOMY IS EXPLODING SO WE MUST – MUST I TELLS YA – SPEND MORE MONEY VIA GOVERNMENT! – TO KEEP UP WITH GROWTH!

    Forgive me if I trust the natural forces tending towards equilibrium more than the entrenched scum who run our political system.

  21. VennData commented on Jun 2

    A rational response, for example, to high oil prices would be to buy oil company equities. A rational response to a bloated farm bill: invest in Ag land. A GOP landslide: defense, businesses that service white-people churches, automatic weapon manufacturers. A Democrat win: mutual fund families serving organized labor, flag companies (all the burning you’ll see) etc.

    Realize we live in a two-party corporatist republic. If you want to fight it, fine, you’ll lose. If you want to fight hard you’ll end up in the hoosegow with two million like-minded economic revolutionaries.

    If you believe that somehow seniors won’t get their Social Security and Medical care paid because some book is predicting it, you will be wrong.

    Here, here’s a party hat and a noise maker, join in, it’ll all work out. Now after work, get yourself to the mall.

  22. Westparker commented on Jun 2

    Vildan,

    You said… “And, while I own a book about the fall of the dollar (but can’t say I have actually read it), I noticed that it was written a full 5 years ago”

    You must be kicking yourself that you didn’t read it. Being short the dollar for the last 5 years may have been the best trade you ever made.

  23. Clay commented on Jun 2

    “At $1.8 trillion annually in a $14 trillion economy, the states and municipalities spend almost twice as much as the federal government, including the cost of the Iraq war.”

    I wonder if any of this $1.8 trillion of expenditures includes any Federal subsidies received by the states, counties and municipalities, or is this $1.8 trillion spent purely from state, county and municipality revenues ex-Fed subsidies?

  24. Ritchie commented on Jun 3

    Funny how the cries of Conservative intervention only run one way –

    *THE ECONOMY IS SLOWING DOWN SO WE MUST – MUST I TELLS YA – LOWER TAXES! – TO SAVE THE ECONOMY!*

    But when the economy is booming, our disgusting political class works the other side of the gutter.

    *THE ECONOMY IS EXPLODING SO WE MUST – MUST I TELLS YA – LOWER TAXES! – TO KEEP UP WITH GROWTH!

    Forgive me if I trust the natural forces tending towards equilibrium more than the entrenched scum who run our political system.

  25. michange commented on Jun 3

    People who drastically cut public expenses :
    – Indonesia.
    – Chile,Bolivia, Argentina.
    – Poland.
    – Russia.

    Ritchie, please dezoom, read Keynes, forget about Friedman.

  26. michange commented on Jun 3

    Oops!

    Sorry Ritchie. I mean : allright, cas127 should read Friedman.

    My scrolldown button was aloof…

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