If you’re considering bankruptcy in 2010, it’s important to know you’re not alone. In addition to the millions who filed in 2009 or are considering bankruptcy as their last ditch financial New Year’s resolution, most American states could face insolvency in the coming year. As such, it is the “bankrupt state of the states” in the still-unfolding economic crisis that could be a major barometer for all of our ever-fluctuating financial futures.
While California’s credit crunch has been well-reported, Adrienne Gonzalez notes in her Jr Deputy Accountant blog (46 States Could Face Bankruptcy in FY09/FY10) that many municipalities are on the brink of a financial meltdown. According to the Center on Budget and Policy Priorities, 46 states could find themselves bankrupt and destitute by the end of fiscal year 2010. Gonzalez adds:
"States are currently at the mid-point of fiscal year 2009 - which started July 1 in most states - and are in the process of preparing their budgets for the next year. Over half the states had already cut spending, used reserves, or raised revenues in order to adopt a balanced budget for the current fiscal year - which started July 1 in most states. Now, their budgets have fallen out of balance again. New gaps of $51 billion (over 10% of state budgets) have opened up in the budgets of at least 42 states plus the District of Columbia. These budget gaps are in addition to the $48 billion shortfalls that these and other states faced as they adopted their budgets for the current fiscal year, bringing total gaps for the year to 15 percent of budgets....The states’ fiscal problems are continuing into the next two years. At least 45 states have looked ahead and anticipate deficits for fiscal year 2010 and beyond. These gaps total almost $94 billion - 16 percent of budgets - for the 36 states that have estimated the size of these gaps and are likely to grow as gaps are re-estimated in the next few months."
STATES WITH MID-YEAR FY2009 BUDGET GAPS
|Size of Gap||Percent of FY2009 General Fund|
|District of Columbia||$258 million||4.1%|
|New Hampshire||$50 million||1.6%|
|New Jersey||$2.1 billion||6.5%|
|New Mexico||$454 million||7.5%|
|New York||$1.7 billion||3.0%|
|North Carolina||$2.0 billion||9.3%|
|Rhode Island||$372 million||11.4%|
|South Carolina||$871 million||12.7%|
|South Dakota||$27 million||2.2%|
|Note: An entry of “DK” in Size of Gap means that an estimate of the size of the projected gap in that state is not yet available|
Many share Gonzalez’s sentiments that the above numbers “look slightly frightening.” Elizabeth McNichol and Nicholas Johnson from the Center on Budget and Policy Priorities, one of the nation’s premier policy organizations working on policy and public programs that affect low- and moderate-income families and individuals, further project that, “States will continue to struggle to find the revenue needed to support critical public services for a number of years.” Citing budget shortfalls in 2010 and 2011, McNichol and Johnson illustrate how the states’ economic plight affect everyday Americans already beleaguered by their own personal recessions.
"In states facing budget gaps, the consequences are severe in many cases — for residents as well as the economy. As the 2009 fiscal year ended and states planned for 2010, budget difficulties have led at least 43 states to reduce services to their residents, including some of their most vulnerable families and individuals. Over 30 states have raised taxes to at least some degree, in some cases quite significantly."
With the potential for higher taxes and reduced social services, average Americans may continue to suffer from the financial missteps of their home states. However, let the negative numbers above be a positive lesson that, from the largest states to the bankruptcy bound individual, a fresh chance to rebuild the finances is really what bankruptcy is all about! To learn more about the benefits of bankruptcy, visit The Law Offices of John T. Orcutt online today.