Escalating Financial Crisis Gripping States
A week after President Bush signed a $700 billion bailout plan for Wall Street, the financial crisis has deepened in many state capitals with tight credit markets and new, pessimistic budget figures that pose the biggest threat to states' fiscal health in 25 years.
Grim-faced state officials, seeing reports from the first three months of the budget year that began July 1 for all but four states, are bracing for further declines in tax revenue because of the housing slump, rising unemployment and a slowdown in consumer spending.
Pennsylvania's revenue collections fell about 5 percent below estimates made in July, producing the state's largest first-quarter shortfall in 30 years. A similar lag in Rhode Island has contributed to a record $67 million deficit with nine months left in the budget year. South Carolina — whacked by high unemployment — pared its revenue estimate by 6 percent and now faces a $554 million shortfall. Massachusetts officials may have to slash up to $1 billion and have warned local governments to be prepared for cuts in state aid.
Even before this fall's meltdown on Wall Street, state officials had laid off 7,000 employees and reduced services as they cut billions of dollars in spending to plug growing shortfalls in state budgets. Now, as the financial crisis escalated in the last week, governors are taking more steps.
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