State Tax Revs & Economic ChangesCalifornia tumbles into the sea.”

Yes, Steely Dan predicted it in 1973, when Ronald Reagan was still Governor but we thought they were talking about earthquakes at the time.  This year it’s clearly California’s 49.3% budget gap and 16.2% drop in state revenue that has them leading a list of lemming states to their doom.  Over 1M state and municipal employees may be getting their last checks this Christmas as 9 states face budget issues on par with California.

According to The Atlantic:  Nine more states are “barreling toward an economic disaster” according to a new Pew poll that sees deep service cuts and temporary tax hikes to avoid fiscal calamity. Some of these states will be familiar to Atlantic Business readers. I’ve been leading the funeral cry for the united states of MichiCaliFlAriVada (that’s Michigan, California, Florida, Arizona and Nevada), and all five states are on Pew’s list. Rounding out the ten are Illinois, New Jersey, Oregon, Rhode Island and Wisconsin. Here’s the graph from the Pew Center on the States:

Six Factors   Revenue change Budget gap   Unemployment rate change   Foreclosure rate   Need supermajority?     GPP “money” grade   Score
United States   -11.70%   17.7%5   4.4   1.37%   17 yes, 33 no     B- 5   17
California   -16.20%   49.30%   4.6   2.02%   Yes     D+   30
Arizona   -16.50%   41.10%   3   2.42%   Yes     C+   28
Rhode Island   -12.50%   19.20%   4.5   1.50%   Yes     D+   28
Michigan   -16.50%   12.00%   6   1.47%   Yes     C+   27
Oregon   -19.00%   14.50%   6.4   0.86%   Yes     C+   26
Nevada   1.50%   37.80%   5.2   3.12%   Yes     C+   26
Florida   -11.50%   22.80%   4.4   2.72%   Yes     B-   25
New Jersey   -15.80%   29.90%   3.7   1.18%   No     C-   23
Illinois   -10.90%   47.30%   3.5   1.44%   No     C-   22
Wisconsin   -11.20%   23.20%   4.4   0.96%   No     C+   22

This horrible news only underscores the fact that even though 70% of stimulus spending has gone to fill in Medicaid and state budget holes, our states are still in dire straits because state tax revenue is collapsing across the country.  Unlike the federal government, states cannot run deficits, which means cascading revenue becomes cascading services and many, many cut state jobs. For those who resist another state bailout-type stimulus bill, they must recognize what that entails: hundreds of thousands of state employees joining the ranks of unemployment, and unemployment benefits. Q3 was great, but this thing isn’t close to being over.  The Center on Budget and Policy Priorities reports that states could cut almost a Million jobs without US aid because of budget shortfalls.

A Million jobs!?!  That can’t be good, right?  Of course, as Jim Cramer told us on Friday: “The bears were right, unemployment is awful but no one seems to care.”  So far this week, Jim is right and I am wrong – we’ve gone up another 100 points since I made my top of the market call on Monday night so I tip my cap to Jim, who seems to be able to switch off his brain and go with the flow a lot better than I can.  My call yesterday morning, was to take advantage of the futures pop at…
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