Bloomberg News

U.S. State Revenue Gaps May Cause ‘Widespread’ Cuts, Fitch Says

October 06, 2011

Oct. 6 (Bloomberg) -- U.S. state revenue may fall short of forecasts, which may lead to “widespread” budget cuts, Fitch Ratings said.

Most states projected fiscal 2012 revenue before national economic forecasts were revised downward, which may reduce tax collections, Fitch said in a report today. Year-over-year growth didn’t improve in 32 states in August, compared with the previous month, Fitch said.

“Although state revenues have shown signs of recovery in 2011, employment performance is far from robust, and trends are not positive,” Fitch said. September’s revenue results “will be a helpful indicator of whether widespread budget adjustments will be needed,” the ratings company said.

California Comptroller John Chiang warned in September that the state would need to decide by December whether to “pull the trigger to cut more program funding,” after revenue for the first two months of the fiscal year came in $403.8 million under projections. Florida will likely lower its revenue forecast this month because of slower-than-expected growth and a faltering housing market, Amy Baker, the Legislature’s chief economist, said in an interview Sept. 9.

Economists surveyed by Bloomberg in September forecast that the U.S. economy would grow 2.2 percent in 2012, down from January expectations of 3.2 percent, according to the median estimate. The Federal Reserve in June cut its expectations for 2012 growth to a range of 3.3 percent to 3.7 percent from a range of 3.5 to 4.4 percent in January.

--With assistance from Michael B. Marois in Sacramento. Editors: Mark Schoifet, Stephen Merelman

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To contact the reporter on this story: Simone Baribeau in Miami at sbaribeau@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.


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