U.S. state gov'ts face great financial difficulties: Treasury official

U.S. state and local governments are facing considerable financial difficulties amid declining revenues because of the recession and increasing need for their services, a senior Treasury official said on Monday.

"State and local governments were hit especially hard by this recession," Alan Krueger, Assistant Secretary for Economic Policy at the Treasury Department, said at the National Association of State Treasurers annual conference in Williamsburg, Virginia.

"The seizure of credit markets meant that states could not issue municipal debt at reasonable rates. Moreover, declining economic activity meant declining tax receipts," he added.

State general fund revenue in fiscal year 2010 ended September is projected to be 10.6 percent below its level in 2008, according to the National Association of State Budget Officers. State receipts are expected to rise only around 3 percent next year, compared with a projected increase of almost 14 percent in federal revenue for the same period.

"Movements in state and local government revenues typically lag behind movements in federal revenues during both recessions and recoveries, partly because states are more dependent on sales tax revenue and spending patterns adjust more slowly than income," Krueger explained.

The National Association of State Budget Officers estimates that states collectively are facing budget deficits of over 62 billion dollars in fiscal year 2011 and over 53 billion dollars in 2012.

"This recession has also had an unusually large impact on state and local government employment. This was the first recession in recent memory in which both state and local employment fell," he said.

State government employment has fallen by 69,000 since its peak in August 2008, while local government employment has fallen by 247,000 during the same period, according to the Labor Department.

[Source: Xinhua, Washington, 23Aug10]

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