Slowdown Indicators Seen In State Economies

Indications that the nation's economic strength is diminishing are beginning to appear on the state level.

In Maine, where budget officials and lawmakers have grown accustomed to surplus revenues in the $300 million to $400 million range, only $44 million extra is projected for the state's next two-year budget cycle, officials disclosed this week.

"As with the overall economy, signs are starting to trickle in that some states are feeling evidence of a slowdown," says Ray Scheppach, executive director of the National Governors' Association. " We sometimes do quick surveys of the (state) budget people. A few are beginning to say, `this is not looking good.'

"You've got kind of a slowing of the economy, so (tax) revenues are slowing down," Scheppach says. "Also, Medicaid is beginning to bubble back into two digits. Medicaid is something that is probably over 20 percent of state budgets right now."

Earlier this month, the Federal Reserve Bank of Minneapolis released a report indicating the economies of Minnesota, Illinois, Wisconsin, Michigan, Montana, North Dakota and South Dakota were growing at a more moderate rate than they were earlier this year.

The report singled out slowdowns in construction, retail sales and agricultural production, according to the Minneapolis Star Tribune . The Fed based its report on a canvass of banks, businesses and economists.

Looking to the South, Mississippi Gov. Ronnie Musgrove has called for nearly $50 million in spending cuts, the first governor-mandated spending reductions in nearly a decade, The Associated Press reports. The underlying reason given for the cuts is that tax collections for the first four months of the fiscal year failed to meet expectations.

Two Mississippi agencies facing reductions as a result of Musgrove's directive are the departments for Human Services and for Health.

South Carolina will have to tap into its rainy day fund for the first time in eight years because revenue collections are dropping as much as $100 million short of projections, The State newspaper in Columbia says.

During a recent meeting of the Business Council CEO summit in Boca Raton, Fla., the nation's top executives reported seeing clear signs that the nation's economy seems to have dropped into a lower gear. "I don't think there is any question there is a softening," Boeing CEO Phil Condit told USA Today.

Many state economies are slowing down, too, says Federation of Tax Administrators spokesman Ron Alt. However, he cautions that 'slowdown' can be a relative term when applied to a state's economy.

"Generally, the last numbers I've seen show most states have been very strong," Alt says. "I understand the GDP for the third calendar quarter was down to about 3 percent, as opposed to about 5 percent.

"There's going to be a slowdown, yes," Alt says. "How much, that's tough to tell. The economy can't continue growing 5 to 6 percent indefinitely."

Alt won't get any argument from Laurie LaChance, a Maine economist and chairwoman of the state's Revenue Forecasting Committee. Maine's projected $44 million budget surplus is "not in any way, shape or fashion like the surpluses of the past," LaChance told the Kennebec Journal . "This is a screeching halt to excess growth."

A recent Moody's Investor Service report points out that state Medicaid spending has been in excess of budget estimates in many states, following years of moderate, well-controlled growth for the health care program. Policy experts are predicting a moderate re-acceleration of state Medicaid spending for the next decade, according to Moody's.

In at least one instance, fallout from a sluggish state economy is being felt by a major city. On the same day the Federal Reserve Bank of Minneapolis released its report, New Orleans Mayor Marc Morial proposed a 2001 operating budget calling for laying off 180 workers and for increasing city fees by $7 million.

In announcing his $549.3 million spending plan, Morial said cuts in state aid to his city were partially to blame, the New Orleans Times-Picayune reported.

Louisiana was one of a handful of states that had been experiencing economic doldrums in the midst of the longest sustained economic boom this country has ever seen. The state has had a hiring freeze since May and Republican Gov. Mike Foster wants to revamp the state's tax system.

Another state facing tough economic times before slowdown indications was Tennessee, where state lawmakers were recently told to anticipate a $202 million budget shortfall as tax collections continue to fall short of budget estimates.

"I am becoming concerned that we are experiencing a trend," Tennessee Finance Commission Warren Neel said in the Nashville Tennessean.

"Tennessee is facing a severe financial situation that we were told over two years ago is coming," state Senate Speaker pro tem Bob Rochelle said in the same Tennessean story.

During a recent meeting of the Business Council CEO summit in Boca Raton, Fla., the nation's top executives reported seeing clear signs that the nation's economy seems to have dropped into a lower gear. "I don't think there is any question there is a softening," Boeing CEO Phil Condit told USA Today.