Dr. Tom Stinson, the state’s economist, spoke to the House Ways & Means committee last Friday and had some extremely sobering words to share.
New national unemployment numbers came out last Friday morning. The U.S. economy has lost 1.9 million jobs since last December (533,000 of those losses came last month alone). It’s hard for most of us to understand what those numbers mean, but Stinson described it as “catastrophic.” This magnitude of job losses could hit the state budget through lower income and sales tax revenues, as well as a greater need for services that support the unemployed and their families.
And watch out for capital gains collections. You may remember back in 2002 the state got slammed with a sudden and dramatic drop in capital gains collections that contributed to a $4.2 billion deficit. The current November Forecast figures in a 30% drop in capital gains collections between 2007 and 2008. That’s a bit of a gamble, Stinson admits, because many other states are assuming a 50% drop. If we lose that bet, we could be looking at an additional $200 million in lost revenues for the current biennium (FY 2008-09). And here’s the really bad news, we will not know the answer until after April 15 next year – about a month before the end of the biennium. Since we are constitutionally required to balance our budget by June 30, 2009, Stinson warns that we could be facing very difficult financial problems unless we have a sufficient reserve in place.
Bottom line – there is still a lot of uncertainty in this forecast. So, as Stinson advises, we would be wise to leave money in our reserves to absorb the surprises we may be facing as this biennium draws to a close next June.