Housing Slump Strains Budgets of Cities, States

Amy Merrick:

Tremors from the housing market's slump are straining the budgets of state and local governments from coast to coast, sending officials scrambling to plug gaps.

Rising defaults on subprime home loans are boosting the inventory of unsold homes and driving sale prices lower. That's cutting into housing-related revenues from building-permit fees, taxes on contracting and recording property transfers, and even sales taxes.

As a result, legislators in Florida, which was at the forefront of the housing boom, plan a special session this month to consider deep budget cuts to offset a projected $1.5 billion funding gap. California forecasts a shortfall of at least $5 billion in next year's budget. And Chicago faces a $217 million gap in its $5.6 billion budget for 2008.

In the Kansas City, Mo., area, more than two dozen agencies that serve the homeless are likely to lose at least some of their funding this year. Meanwhile, the tiny town of Sultan, Wash., near Seattle, has had to lay off the janitor at City Hall, forcing office workers to take over bathroom-cleaning duties.

In many cases, budget officials knew that the fast pace of housing-related revenue growth in recent years wasn't sustainable, but the extent of the slowdown has sometimes surprised them. Unlike the federal government, states and local governments generally balance their budgets. That means sudden revenue shortfalls can translate into serious cutbacks in spending plans.

"Our forecasts for the last couple of years have been building in a decline" of revenue as the economy headed toward a soft landing, says Amy Baker, coordinator of the Florida Legislature's Office of Economic and Demographic Research. "What we discovered, when we met in 2006 and then spring 2007, is that the decline was actually occurring more rapidly than we thought."

Posted by Jim Zellmer at September 7, 2007 12:00 AM
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