Leader Blues

Tuesday, January 05, 2010

EDITORIAL >> State income keeps falling

Living in the economic backwaters has its good points and its bad points. When, in 2007, the country fell into the worst recession since the Great Depression, the misery index steepened on the seaboards and in the industrial Midwest and high-growth meccas like Nevada, Florida and Arizona. Governments found themselves strapped for the revenues to continue services.

As with economic downturns historically, things were not so bad in Arkansas, or at least not so much worse than they always were. We didnít have an industrial base to contract and most of Arkansas had lain outside the great housing bubble.

Foreclosure notices were making the big newspapers a little richer, but it was nothing like California, the desert resorts, south Florida or even Cleveland. Our state government continued to run budget surpluses well into 2008, and unemployment at its peak barely topped 7 percent, roughly half what it was in our sister lottery state of South Carolina over on the coast.

But, as always, the misery was just late coming, and it is apt to linger after the good times rebound in the glitzier precincts, which we hope but have little faith will begin shortly.

The state fiscal agency ladled out the bad news yesterday. Government revenues have been falling sharply, a little worse every month, and December was very bad. The report reflected taxes on commerce only through November, not the Christmas season, so there likely is more bad news directly ahead. The state will have to tighten its belt again, for the second time this fiscal year. Our fiscal system requires it so that government does not finish the year in the red. There almost certainly will have to be some reductions in state services unless Governor Beebe throws more of the stateís dwindling fund balances into the breach.

In a few weeks, the legislature will be returning for its first-ever fiscal session and the lawmakers and the governor will have to determine whether the stateís budget priorities need to change in light of the declining revenue outlook. There should be no significant change. Public education is already guaranteed priority funding. We would hope that services to the neediest like indigent medical care would be sustained at whatever cost. Colleges and universities will take a hit in the fiscal year starting this fall even if budget priorities remain fixed, and lawmakers may decide that the institutions can stand a bigger hit. Beebe and the legislators will undoubtedly consider the considerable infusion of college aid through the lottery next fall and decide that the institutions can handle the hard times better than more vulnerable constituents of state aid. If you have college-bound youngsters, you can count on another tuition increase next fall, which can be covered for most of you by the fattened scholarships.

The lottery, after all, played a not insignificant part in the revenue decline, along with the new sales tax exemptions passed by the legislature in 2007. If people spend more than $400 million on lottery tickets this year, that is $400 million that will not be spent on goods and services that are subject to sales and excise taxes. Income taxes on lottery winnings will not make up the difference.

The adjustments need not be terribly wrenching. Just pray that it gets no worse.