More States Struggle With Finances As Tax Collections Dip

Sacramento, CA (AHN) - The financial crisis that started with the collapse of Wall Street firms has changed the fiscal landscape of many states the past few weeks. Tax collections are down and states have to cut services.

Leading the states with major budgetary gaps are California and New York, which are planning special legislative sessions to reduce their budget deficits. California is contemplating a 1.5 cent sales tax increase, while New York eyes major reductions to Medicaid and education.

Outside of the two states, other states are struggling too. Michigan will cut overtime cost, which means lesser streets will be salted for winter. Ohio may seek a federal loan for the first time in 26 years to cover unemployment cost, while Nevada, due to a dip in gambling revenues, may likely fail to pay claims in a few months.

Among the hardest hit states were those with housing booms which became widespread mortgage and foreclosure cases such as Rhode Island, Arizona, California, Florida and Nevada. Also reeling from the economic slow down are states with financial markets now suffering from a slump in capital gains taxes and state income taxes, while experiencing large claims against unemployment benefit.

The slow down has also affected states like Florida and Arizona that rely heavily on sales taxes and on tourism such as Nevada and Hawaii as consumers cut back on vacations and spending.

Most states are avoiding tax increases to make up for lower collections, except for California and Oregon which plans to hike the state's gas tax by 2 cents a gallon and car registration fees.

Many states are also planning to push through with large-scale infrastructure projects to stimulate the local economy.

The budget cuts are replicated at the city and county level, like in the Los Angeles Unified School District which is studying its options such as enlarging class sizes, laying off school personnel and granting early retirement incentives in an effort to cut the district's budget by $400 million next year.