Business
No easy way out of this recession for Rhode Island
01:00 AM EDT on Sunday, October 12, 2008

Rhode Island was the first state in New England, and among the first in the United States, to fall into a recession.
During prior downturns, Rhode Island has been pulled out of its slump by the recovery of the economies of larger, neighboring states or the country.
But don’t count on any help this time, at least not anytime soon.
Other states in the region, and across the country, are now following Rhode Island into recession. And there’s no sign of when they will stabilize or expand and create new jobs to give Rhode Island a hand up.
More evidence piled up last week that showed the deterioration of state economies is accelerating, blowing huge holes in state budgets.
In Rhode Island, state revenues for July, August and September were off $33.1 million from forecasts used to balance the current fiscal-year budget. When that figure is added to the $33.7-million deficit left over from the fiscal year that ended June 30, the gap widens to $66.8 million. On top of that, the estimated $10-million payment for the Station nightclub settlement pushes the current-year shortfall to $76.8 million.
In Massachusetts, Governor Patrick’s administration reported that revenue for the first quarter of the fiscal year came in $233 million below expectations. September was the worst of the three months in the quarter, with revenues off $188 million from what was forecast.
In Connecticut, the Office of Policy and Management is anticipating revenue deterioration of $170.4 million for the current fiscal year, contributing to a projected deficit of $150 million.
Those forecasts have come out after only the first quarter of the fiscal year, and economists project the recession will deepen.
“The economy is going to get worse, not better…We don’t know how bad it’s going to get,” said Alan Clayton-Matthews, a professor of public policy at the University of Massachusetts at Boston.
Outside of New England, it’s much the same story. The decline in house values, the rising number of foreclosures and high energy prices that sent Rhode Island into a tailspin have spread to other states. Also, the collapse of financial institutions in money centers such as New York, as well as tightening credit nationwide, has pushed the nation to the brink of, if not already into, a recession.
Most states reported little or no growth in tax revenues in July or August, compared with the comparable months a year ago, according to the Federation of Tax Administrators, the Washington-based association of tax authorities in the 50 states.
As a result, lawmakers in most states are facing a “bleak fiscal landscape” as they grapple with shortfalls this fiscal year and plan budgets for the next year, said James Eads, executive director of the federation.
The Center on Budget and Policy Priorities, a think tank in Washington, D.C., confirmed the crisis and reported midyear budget gaps in the states that total a whopping $5.9 billion.
“New gaps have opened up in the budgets of at least 15 states and Washington D.C.,” according to the organization’s report. “The states’ fiscal problems are likely to continue for some time.”
While revenue shortfalls are increasing, state spending is also rising, largely because more people are seeking social and health-care services.
“Expenditure pressures continue as demand for increased funding of programs such as Medicaid persists and states deal with looming long-term issues such as funding pensions, demographic shifts and maintenance and repair of infrastructure,” according to a report last week from the Rhode Island Public Expenditure Council, the independent, nonpartisan research organization that is supported and largely directed by business.
The Kaiser Commission on Medicaid and the Uninsured reported that a 1-percent increase in unemployment nationwide translates to an increase of 1 million people enrolled in Medicaid and related programs, an increase of $3.4 billion in combined state and federal Medicaid spending and an increase of 1.1 million in the uninsured population because many people who lose employee-sponsored coverage do not qualify for Medicaid.
The revenue declines and spending increases will leave lawmakers here and across the country with tough choices to either raises taxes to bring in more money to cover the cost of government or cut services, again.
“State and local budget officers are extremely concerned” about the continuing falloff of revenues during the next year to 18 months, said Scott Pattison, executive director of the National Association of State Budget Officers.
“I don’t think there’s any question you’re going to see across-the-board budget cuts in a lot of states,” he said.
So far, none of the rescue plans put together in Washington has stemmed the decline.
The $700-billion bailout plan enacted by Congress and signed into law by President Bush has not stabilized the economic slide or the volatility in the markets. Advocates argue it needs more time.
The Federal Reserve Board, under the leadership of Ben Bernanke, took several unprecedented actions last week, including a plan to buy commercial paper from companies to loosen credit and a lowering of short-term interest rates.
Still, by week’s end, the economy and the markets remained in turmoil.
Recessions in the past have ended in Rhode Island when one segment of the economy provided a boost.
In the 1980s, it was defense spending nationwide that led the state out of recession.
In the 1990s, the growth of technology, especially in nearby Massachusetts, created jobs and sparked recovery.
This decade, after the dot.com bubble burst in 2000, sending the state and region into a short, shallow recession, it was the boom in housing that created jobs and prosperity.
So what will it be now?
It’s still an open question. Economists, budget forecasters and people out of work will have to look deep into 2009 for an answer.
Buckle up.
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