A Quick Take on State Finances - Waiting for Godot

This article was originally published on eBooleant.com. Join readers who track the tensions in state finances. [Author note: This article reflects the information available from the states before they were flooded with cash.]

Just as it seemed that we had finally the passed The Great Recession in state and local priorities, catastrophe is upon us. Call it Waiting for Godot. States face Godot’s existential uncertainty as their budgets sink and their layoffs surge.

No matter whether the economy is a V recovery, that is, a sharp return to last year’s market levels, the states are going to face an L. The L of course means that there will be a long term recovery. The effects of the first wave of the virus are just coming into the state and local fiscal domain in spite of a round of federal help. The magnitudes are just being grasped. For many states, this is pure sticker shock.

Whether we get a second wave in the fall remains uncertain. But even without it, the momentum from the lost revenues and medical costs incurred in the first wave will lead to large holes in state budgets. Those can only be met in most cases with cost reductions and layoffs.

The tsunami of credit downgrades will also shock the investor. They are a long lagged after effect and for larger issuers do not really constitute “news.” News on state finances needs to be carefully reviewed for its authority and its immediacy.

That said, we are still on track for a recovery, a bumpy one, of several years in duration, which can only be interdicted by scientific breakthroughs and fiscal emergency spending of significant proportion.

We hope you enjoyed this article. Please give us your feedback.