Gov. Mitch Daniels: States must tighten their belts even more
Indiana Gov. Mitch Daniels, who ran the US government鈥檚 budget office for George W. Bush, expects that the 50 states will need to permanently tighten their belts and do less for their citizens.
Because of the economic contraction, the Republican governor foresees 鈥渁 long-term contraction in the scope of what states are doing,鈥� he said at a Monitor-sponsored breakfast for reporters on Tuesday.
New report on state revenues
The recession without doubt has left states in financial trouble, as tax collections have fallen. (The Monitor writes about states facing the severest problems here.) State tax revenues declined 4.1 percent nationwide during the final three months of 2009, according to a .
Five straight quarters of year-over-year decline set a record, the Institute said, with both income-tax and sales-tax revenue falling during the entire five-quarter period.
When a recovery comes, Governor Daniels says, 鈥渟tates cannot expect the sort of rapid snap back in revenues that had been the case in the past.鈥� The reason, he argues, is that in the past Americans 鈥渟pent more than they took in. They borrowed on their credit card, against the paper value of their house 鈥� things they won鈥檛 be able to do or won鈥檛 do going forward.鈥� As a result, he says, 鈥渃onsumption is going to be at permanently lower levels.鈥�
States to feel consumers' caution
Greater consumer caution on spending will mean less tax revenue for states. 鈥淪tates get most of their most of their money, the largest piece I should say, from sales taxes,鈥� Daniels says.
As a result, the expected economic recovery will not solve states鈥� budgetary woes. 鈥淵es, revenues will start to rise again, let's hope, but they will not get back on the trend line as they had in previous recessions,鈥� he says.
鈥淔or states," Daniels wrote in a recent , 鈥渢he real world is about to arrive.鈥�
