Almost Half Of US States Are Officially Broke

Last month, we documented the case of Louisiana State University, the large, well-known public institution whose 2014 enrollment totaled nearly 31,000 students. LSU, it turns out, is facing funding cuts of as much as 82% which, if realized, would likely force the school into financial exigency, the college equivalent of bankruptcy. The reason for the cuts: the sharp decline in oil prices and fiscal mismanagement have conspired to blow a $1.6 billion hole in the state’s budget.

The real problem however is that large budget shortfalls aren’t confined to Louisiana. In fact, a new study from AP shows that big gaps are becoming more the rule than the exception across the US.

Via AP:

An Associated Press analysis of statehouse finances around the country shows that at least 22 states project shortfalls for the coming fiscal year. The deficits recall recession-era anxiety about plunging tax revenue and deep cuts to education, social services and other government-funded programs.

The sheer number of states facing budget gaps prompted Standard & Poor’s Ratings Service to call the trend a sort of “early warning.”

“After all, if a state is grappling with a budget deficit now, with the economic expansion approaching its sixth anniversary, what will be its condition when the next slowdown strikes?” credit analyst Gabriel Petek wrote in a recent report.

The forces at work today are somewhat different than when the recession took hold in 2008. In some states, revenue growth has been stagnant, missing projections and making it difficult to keep pace with expanding populations and rising costs for health care and education. Other states have been hurt by a steep decline in oil prices or seen their efforts to promote growth through tax cuts fail to work as anticipated…

Kansas’ troubles emanate from a income tax cuts implemented at the behest of Gov. Sam Brownback and have created what one public school superintendent calls the worst situation he’s ever seen in terms of the degree to which the education system is being squeezed. More color, from Bloomberg:

Income-tax cuts in Kansas championed by Governor Sam Brownback have led to credit downgrades, political turmoil and deepening budget deficits. This week, they’ll start forcing schools to close early.

As lawmakers work to erase a projected $800 million budget gap for the fiscal year starting July 1, at least eight school districts that saw their funding cut this year because of a greater-than-projected slide in state tax collections will begin shutting down before the scheduled end of classes. Dozens of others have eliminated or cut programs.

Early school closings and program reductions are signs of a budget sinkhole in Kansas, where Brownback and the Republican-controlled legislature approved large income tax reductions in 2012 and 2013. They said reduced levies would spur economic activity that would compensate for lost state revenue. The governor called his move to gradually end the income tax “an experiment.”

“There have been times when things were tight, but this is the absolute worst I’ve ever seen it,” said Mike Sanders, superintendent of Skyline Public Schools, which will end the school year two days early on May 12.

Skyline, about 75 miles west of Wichita, has petitioned the state for emergency cash so it can meet its June payroll.

“It’s crazy times,” Sanders said. “The ideology in this tax experiment has gone too far. It’s almost as if they’re hell-bent on proving their point, no matter the damage it causes.”

Meanwhile, Brownback recently got a rather amusing wake up call at dinner when his waitress, one Chloe Hough, advised the Governor to take the tip he presumably would have left and give it “to the schools.”

Full article: Almost Half Of US States Are Officially Broke (Zero Hedge)

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