It's almost impossible to exaggerate the political and financial challenges facing state governments in coming months. Economists say the present downturn - which could be the worst since the Depression- is likely to last at least into 2010.
Even before the Wall Street meltdown, most states were reeling from collapsing real estate values and high energy prices, which led to a sharp decline in tax revenue after years of growth. The stock market plunge and the tightening of credit raised states' borrowing costs, reduced the value of their pension funds, increased unemployment and stopped many consumers from spending, further shrinking tax receipts.
"In a word, the future is ominous," said Kentucky Gov. Steve Beshear (D).
Amid the economic turmoil came Barack Obama's election as president. A former state legislator who promises federal aid to the states, the Democrat swept into office Nov. 4 in an election that carried many of his political allies to victory at the state level.
Though Republican John McCain narrowly carried Missouri , Attorney General Jay Nixon, a Democrat, handily won the state's open governor's seat. Obama's party now has 29 of the 50 governors, a gain of one. But the pickup will be cancelled if the U.S. Senate confirms Arizona Gov. Janet Napolitano as Obama's director of homeland security. Her successor would be a Republican.
Besides Nixon, new faces are Gov. Jack Markell (D) in Delaware and Gov. Beverly Perdue (D) in North Carolina . Incumbents re-elected were Democrats Christine Gregoire of Washington , Brian Schweitzer of Montana , John Lynch of New Hampshire and Joe Manchin III of West Virginia , and Republicans Mitch Daniels of Indiana , John Hoeven of North Dakota , Jon Huntsman Jr. of Utah and Jim Douglas of Vermont .
Democrats gained control of both houses of state legislatures in New York , Wisconsin , Delaware and Nevada . Republicans scored significant wins in Oklahoma and Tennessee by taking control of the House and Senate in those states. Overall, Democrats control 27 state legislatures, Republicans 14. Eight state legislatures are split between the parties. ( Nebraska has a nonpartisan, unicameral Legislature).
Obama, the first African-American to ascend to the presidency, wasn't alone in breaking barriers on Nov. 4. In Colorado , where blacks account for only 4 percent of the population, both the state House and Senate are now led by African-Americans. And women are now a majority in the New Hampshire Senate, a first nationally.
States also sent messages on social and tax issues in the election.
California , Arizona and Florida voters approved bans on same-sex marriage; 30 states now have such prohibitions. Colorado and South Dakota voters rejected bans on abortion. Washington joined Oregon as the only states to allow doctor-assisted suicide for terminally ill patients. (A Montana court ruling allowing the procedure is under appeal.) Michigan ended its ban on stem-cell research. Nebraska voters banned affirmative action programs.
In Massachusetts , voters rejected a plan to eliminate the state income tax. North Dakotans turned back a proposal to cut the personal income tax in half and reduce business taxes by 15 percent. Slot machines are now legal in Maryland ; lottery tickets will be sold in Arkansas ; and casinos will stay open later in Colorado .
Analysts are divided whether Obama's election represented a political realignment of the country. Obama not only carried every blue state - the traditional Democratic strongholds on the East and West coasts - but also defeated McCain in eight red states won by George W. Bush in 2004 ( Colorado , Florida , Indiana , Iowa , Nevada , New Mexico , North Carolina and Ohio ).
Clues about whether a realignment is indeed at hand could come later this year when Virginia and New Jersey elect governors. Democrat Tim Kaine is leaving office in Virginia ; the Old Dominion is the only state to limit its governor to a single four-year term. Kaine's possible successors include Democrats Brian Moran, a state legislator, and Terry McAuliffe, a leading party activist; and Republican Bob McDonnell, the state's attorney general.
In New Jersey , Democratic incumbent Jon Corzine plans to seek re-election. Possible rivals include U.S. Attorney Christopher Christie, a Republican, and Republican/Independent Lou Dobbs, the cable TV commentator.
Next year, 36 states will choose governors; of the seats, Democrats will defend 19, Republicans 17 if Napolitano leaves Arizona for Washington . Illinois Gov. Rod Blagojevich is one of the Democrats up for re-election next year. But late in 2008, he was accused of seeking bribes for everything from Obama's U.S. Senate seat to state jobs and contracts. The governor has denied the charges. If Blagojevich resigns, or is removed through impeachment, Lt. Gov. Pat Quinn, also a Democrat, would succeed him.
The elections also will affect redistricting - the redrawing of congressional and legislative district lines following the 2010 Census. In most states, a congressional map needs approval from both legislative chambers and the governor, although six states empower a bipartisan commission to do the job.
Targets for Republican gubernatorial pickups include Kansas , Ohio , Pennsylvania and Arizona if Napolitano is confirmed. Democrats want to win back California , Minnesota and Connecticut , among others. A big win for some of the GOP gubernatorial candidates would burnish their credentials for the 2012 presidential campaign. Govs. Sarah Palin of Alaska , the 2008 vice presidential nominee, and Tim Pawlenty of Minnesota are possible national candidates. California Gov. Arnold Schwarzenegger was born in Austria and is prohibited by the Constitution from running for president.
In every state capitol, all eyes currently are on Obama and his fellow Democrats who control Congress because the problems facing states are too expensive for policymakers to resolve without help from the federal government.
"Certainly there's a feeling that having someone who served in a state legislature and knows about states and budgets will be helpful to states," said Joe Hackney, the Democratic speaker of the House in North Carolina who spent a lot of time with the new president during the fall campaign.
Job one for Obama is reviving the economy, analysts say, first by convincing Congress to approve another stimulus package. Obama's advisers have talked in broad terms about spending more than $800 billion on a combination of aid to ailing state and local governments, middle-class tax cuts and infrastructure investments, possibly setting aside a portion for health-care technology and education. The goal of the plan, especially the spending on public works projects, would be to create as many as 3 million jobs.
"It's going to be very important for us to provide the kinds of assistance to state and local governments to make sure that they don't compound some of the problems that are already out there by having to initiate major layoffs or tax increases," Obama said.
After the financial crisis, Obama has said, his most important domestic initiative will be to generate 5 million jobs by investing in renewable energy while reducing the nation's dependence on foreign oil. He told a bipartisan group of governors after the election that he would implement a strategy that would reduce climate-changing carbon dioxide emissions 80 percent by 2050 and develop an energy policy kinder to the environment and less dependent on imports despite the weak economy.
"My presidency will mark a new chapter in America 's leadership on climate change that will strengthen our security and create millions of new jobs," he said.
The new president may not be able to keep all states happy. Inevitably there are issues that pit one region against another. California officials, for example, are confident Obama will keep his pledge to back their plan to require automakers to reduce greenhouse-gas emissions from vehicles 30 percent by 2016. Officials in Michigan , home to the Big Three U.S. automakers, have said they would ask Obama to reject or delay the plan. Obama carried both states in the election.
Analysts say it is critical for Obama to dampen hopes that he can make dramatic changes right away. The recovery is going to take longer, economists say, and no one person can turn it around quickly.
"I do think it's important for the president to lower expectations," said Leon Panetta, former White House chief of staff under Bill Clinton . Another former chief of staff under Ronald Reagan, Kenneth Duberstein, said he believes Americans should give Obama 200 days, instead of the usual 100, before offering initial impressions of his administration because of the enormity of the challenge he faces.
Democratic pollster Stan Greenberg said polls show Americans are likening Obama's challenge to Franklin D. Roosevelt's when he took office in 1933. Americans consider the recession inherited by President Bill Clinton in 1993 and the one facing Ronald Reagan in 1981 to be minor by contrast.
"People are sensing we are entering a new era, not that we are just changing from one administration to another," Greenberg said.
This article is an excerpt from the upcoming State of the States 2009, Stateline.org's annual report on significant state policy developments and trends.