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Study: Nine states risking California-style 'fiscal peril'

November 11, 2009 |  7:19 pm

If misery loves company, the Pew Center on the States public policy think-tank has some comforting words for Californians: Though our fiscal problems "are in a league of their own . . . some of the same factors driving California toward the brink of insolvency also are hurting an array of other states."

Do you feel better already?

A new study from the non-partisan Pew -- "Beyond California: States in Fiscal Peril" -- looks at nine states that the organization asserts aren’t far behind the Golden State in suffering havoc from the Great Recession. The nine, alphabetically: Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin.

The Pew scored all 50 states based on six factors that "contributed substantially to California’s ongoing fiscal woes": high foreclosure rates; increasing joblessness; loss of state revenues; the relative size of budget gaps; legal obstacles to balanced budgets (specifically, a supermajority requirement for some or all tax increases or budget bills); and poor money-management practices.

California, of course, scored worst of all, but it was closely followed by Arizona, Rhode Island and Michigan, in that order.

Considering that Arizona and Nevada, in particular, might be expected to benefit as business refuges from California’s nightmare, here’s what the Pew study has to say about those two states:

--- Arizona: "As the economic news grew bleaker and state revenues sank during the past two years, Arizona’s lawmakers relied on one-time fixes to balance its budget instead of making long-term changes. In part, they were hamstrung by voter-imposed spending constraints, a tax structure highly reliant on a growing economy and a series of tax cuts, made in the 1990s, that has limited revenue. At this writing, policy makers still had not decided how to bridge a $1 billion gap in the current fiscal year’s budget."

--- Nevada: "Nevada’s unique gaming-based economy is in jeopardy, as its state budget relies on gambling and sales taxes to provide 60% of its revenues. Year-over-year revenue has fallen for two consecutive years, a record. But changes to the tax system are difficult to make because, unlike most states, Nevada has written some of its tax laws into the state constitution. So increasing the sales tax or adding an income tax, for example, would be nearly impossible because it requires voters to amend the constitution."

And what did Wisconsin, California’s dairy rival, do wrong to get on the Troubled-10 list?

"The recession has hit Wisconsin harder than most state governments, especially when it comes to lost tax revenues and the size of the hole in its budget," the Pew study says. "Wisconsin’s history of budget shortfalls and pattern of borrowing frequently to cover operating expenses, among other measures, made it poorly positioned to weather the most recent severe economic downturn."

At the opposite end of the spectrum, Wyoming scored best in the Pew study, followed by Iowa and Nebraska (tied for second place) and Montana, North Dakota and Texas (tied for third).

Are the Great Plains states the economic future of America?

-- Tom Petruno

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