ATLANTA'S HOMELESS UNDER SIEGE

The article below was written by Dianne Mathiowetz and was recently published in "Workers World." The article gives a clear and succinct picture of the political climate with respect to homelessness, the City of Atlanta and the Task Force for the Homeless. An updated version of this article is in progress and will be posted soon.

Thanks to Dianne and to Worker's World for allowing us to reprint the story!

On June 22, when temperatures soared into the mid 90s during a heat wave, Atlanta’s water department turned off the water at the city’s largest homeless shelter. The Midtown facility, which is operated by the Task Force for the Homeless, houses some 700 men every night. Its 24-hour helpline also gives daily assistance to hundreds of low-income women, men and children.

Community activists quickly responded to this crisis. Calls for water went out over the radio airwaves and to e-mail lists. Cars, pick-up trucks and even the Georgia Peace and Justice Coalition’s bio-fuel bus, “Rosa,” pulled up to the shelter’s doors to unload cases and jugs of water. Port-a-potties and pallets of ice were donated. Alternate shower and bathroom facilities were made available.

The shelter stayed open despite city officials’ threats to padlock the doors. The next day, Task Force lawyers and supporters won a temporary injunction and restraining order from Fulton County Superior Court Judge Ural Glanville, who ordered the city to restore the building’s water service.

Moreover, the judge authorized the Task Force to pursue legal actions to prove “tortious interference” by the city administration. He ordered the city to turn over documents referring to the shelter. Task Force attorneys will take depositions from city officials with the aim of revealing any city collusion with business interests to defund the shelter’s operations.

While local media reported the court’s order to restore the building’s water, there was no coverage of the ruling that the city should stop its interference in the shelter’s funding operations.

From its founding in 1981, the Task Force for the Homeless has gained a reputation as a fierce advocate for the right of all to decent and affordable housing and for human dignity. Unlike many other agencies that provide only emergency shelter, food, medical care and clothing for low-income and homeless people, the Task Force has also been a political voice, championing their rights and demanding policy change, not charity.

This adamant position has often brought the Task Force into open and public opposition to powerful political and economic forces, especially since the run-up to the 1996 Olympics, when the floodgates were opened to large developers and corporate interests.

At that time, the Task Force filed suit against the city challenging an ordinance banning "urban camping"; it criminalized sleeping or lying in public places, i.e., parks. The organization has also effectively challenged other so-called “quality of life” ordinances which criminalize being poor or homeless and encourage racial profiling.

The city has supported the removal of all public housing projects, beginning with the destruction of Techwood Homes in the mid 1990s to build housing for Olympic athletes. This policy has displaced thousands of low-income families.

However, the Task Force, working with tenants at Bowen Homes—the latest project to be bulldozed—has kept affordable housing on the political agenda. It has mobilized for City Council meetings, pushed through resolutions calling for a moratorium on foreclosures and evictions, challenged the Department of Housing and Urban Development’s policies, and demonstrated at national meetings and conventions.

The first U.S. Social Forum in 2007 used the Task Force building; the participation of homeless people and housing advocates was an achievement of that gathering.

Over the last 15 years, the number of homeless people has grown, given the lack of affordable housing and the low-wage service economy. They’re living on the streets of Atlanta, under bridges, in abandoned buildings, in their cars and in parks.

In 2003, Atlanta Mayor Shirley Franklin announced with great fanfare a plan to end chronic homelessness in 10 years. Millions of dollars were spent to rehabilitate an unused jail.

The Gateway Center was opened two years later, not as a shelter but with 270 spaces for men and 30 for women who enter into programs geared to address the underlying reasons for their homelessness, such as unemployment, addictions, mental illness or domestic abuse. Those who do not participate are labeled “non-compliant” and are refused services at other agencies linked to the Gateway funding apparatus.

As other private and city-funded facilities have closed, the Task Force facility has become the shelter of last resort. The Gateway shuttle bus drops off homeless people there in the middle of the night. Homeless patients released from Grady Hospital arrive there still in their hospital gowns.

The Task Force is legally prevented from offering bed space to women and children in the same facility as men. However, on many nights its lobby is crowded with dozens of women and their children sleeping upright in folding chairs.

Critics throw scurrilous charges at the Task Force for its alleged “lack of results.” They accuse the facility, by its very existence, of encouraging people to remain homeless. Debi Starnes, a former City Councilmember and the city administration’s “homeless czar” is the leading voice in demonizing the shelter’s residents as “criminal elements” in the Midtown area. She falsely blames the Task Force’s funding cutbacks on “ineffectiveness.”

When Starnes told the media that housing was available for everyone staying at the shelter following the recent water cut-off, the Task Force challenged the City to provide it. No housing was forthcoming.

The Task Force’s lawsuit seeks the documentation that would show that Starnes’ actions and those of other city government officials and business associations led to the blocking of federal, state and private funding to the shelter. The facility was legally eligible for the funding and had complied with all requirements.

The city has refused to approve an annual $100,000 federal grant which the Task Force has been in line to receive for the last three years. The mayor’s office has even sent letters urging the grant be denied. Despite the judge’s order of June 23, that the city administration stop interfering in the shelter’s fundraising efforts, the mayor’s office, once again, urged the grant be denied.

The Task Force says it has lost nearly 50 percent of its annual budget due to interference by political and business interests which seek to gain the land occupied by the shelter. It is across the street from Emory University’s private Crawford Long Hospital and within blocks of newly built million-dollar condominiums.

The facilities’ operations—keeping it clean and functioning, providing security, staffing the offices and more—are largely done by current residents and formerly homeless people. The building houses an art gallery and studio space where homeless artists can paint and express their creativity.

A projected coffee house and community gathering place awaits the full restoration of water to become an ongoing performance venue. Already, at a weekly open-mike night, spoken-word artists and musical performers from among the homeless population and the community gather to share their talents. Programs teach computer, photography and video skills and bicycle repair, and there are literacy and voter registration campaigns.

Anita Beaty, the Task Force’s director, stresses that the coordinated attack on the shelter is not the central issue, even though it is an important facet of the struggle. The presence of thousands of homeless women, men and children, mostly African-American, on the main street of Atlanta, Dr. Martin Luther King Jr.’s birthplace, and the home of the Civil Rights Movement, makes it clear that “the city claims a history of progressive social change that it does not want to live.”

Task Force supporters are gearing up to pack the courtroom when its lawsuit against the city goes to court on Sept. 21… And the water crisis continues. On July 15, unless another $8,000 is paid, the city once again vows to disrupt service. The Task Force for the Homeless is soliciting donations of water and money. For information, call 404-230-5000 or see homelesstaskforce.org.

New Posts Forthcoming

Our apologies for the lack of updates since Dec. 2008. New posts will be forthcoming. Please check back often as we will be working diligently to get caught up.

Thank you

THE COALITION ON HUMAN NEEDS ISSUES REPORT ON THE ESSENTIAL STEPS TO REVERSE A LONG & DEEP RECOVERY...

CHN has issued a new report, “Towards Shared Recovery” that addresses the effects of the recession as well as the steps that we will need to take to recover from a year of job losses, foreclosures, health care displacement due to job loss and more. The report provides a comparison between current social safety net programs and ones employed in prior recessions and provides recommendations for policymakers in order to soften the impact of the recession.

Our government safety net is not like it was in the '80's. Many poor are left without any programs to act as a basic cash assistance safety net. Today only 40% of eligible families actually receive cash assistance. This is the first recession in decades with both a weakened unemployment insurance system and a dramatically smaller cash assistance safety net.

The report, Recession Could Cause Large Increases in Poverty and Push Millions into Deep Poverty, can be found at: www.cbpp.org/11-24-08pov.pdf

TIME MAGAZINE: VIOLENCE AGAINST THE HOMELESS: IS IT A HATE CRIME?

By Alison Stateman / Los Angeles / Wednesday, Oct. 22, 2008

The chapel at Immanuel Presbyterian Church was filled to capacity last Saturday afternoon, with mourners moving up to the balcony. Much to the surprise of his family, hundreds of people — from infants to senior citizens — came to honor John Robert McGraham, a homeless man who was brutally murdered on Oct. 9. McGraham, 55, was doused with gasoline and set ablaze. Despite efforts of residents and shopkeepers to extinguish the flames, he died at the scene, on a sidewalk in front of a boarded-up dental office on the corner of West Third and Berendo streets in the mid-Wilshire area of Los Angeles. "They targeted him in my mind, and that's the worst kind of person," says his sister Susanne McGraham-Paisley of the suspects, who remain at large. "I hope they give them the full scope of the law because that person went to a gas station, filled up the gas can, drove to the site, poured gasoline on him and then set him on fire. That person had so many opportunities to change [his] mind and ... didn't."
California has the dubious distinction of ranking second, just behind Florida, in the number of lethal and nonlethal attacks against homeless people last year. It recorded 22, but, says Maria Foscarinis, executive director of the National Law Center on Homelessness & Poverty, the actual number of attacks is likely even higher because many are never reported. After a huge increase in 2006 — 65%, some of which is attributed to the video Bumfights, in which people who live on the street are pitted against one another — last year still saw an increase of 13%. Street people, says Foscarinis, live "outside, so they can be attacked by anyone for any reason. There are a couple of more subtle factors that are leading to this as well, and one of them is that there are increasingly punitive actions taken by cities against homeless people. So that also sends a message that these people are less than human and that attacking them is O.K."
The attacks on homeless street people are particularly vicious. "They are the most vulnerable people in the country," says Tony Taylor, a research associate at the National Coalition for the Homeless. "Over 1 in 4 attacks that are reported against the homeless end in murder. That's huge compared to one-tenth of a percent of other protected classes," he said, referring to categories of individuals currently protected under federal hate-crime legislation. These crimes typically include bias-motivated violence and intimidation against individuals based on their sexual orientation, race or religion. Being homeless and on the street is not one of the existing categories. In 2006, the last year that FBI figures were available for hate-crime fatalities, three individuals in the protected classes were killed vs. 20 homeless individuals.
Hence, there is a movement to get them covered by existing hate-crime legislation. The Coalition and Law Center are lobbying members of Congress to pass two bills, sponsored by Texas Representative Eddie Bernice Johnson, which would amend two hate-crime acts. The first bill, H.R. 2216, introduced in Congress on May 8, 2007, seeks to amend the Hate Crime Statistics Act to include crimes against the homeless. This would require the FBI to collect data on crimes against the homeless — data sorely needed by homeless advocates — in order to determine if they are hate-motivated attacks. The second bill, H.R. 2217, introduced on the same date, seeks to include the homeless in the list of classes protected under the Violent Crime Control and Law Enforcement Act of 1994. Both bills have been referred to the House Subcommittee on Crime, Terrorism and Homeland Security.
Foscarinis says the proposed legislation seeks to increase the punishment for hate crimes against the homeless by three offense levels. "At the same time we are lobbying for real solutions, which are housing and social services for homeless people, we have to make sure their lives and dignity are respected," says Foscarinis. "The point of hate-crime legislation to act as a deterrent. It becomes a more serious crime when it's considered a hate crime, and there is a harsher sentence that's imposed. We want to send a message that homeless people's lives are just as valuable as anyone else's life."
That message has certainly been the unintended consequence of McGraham's murder. It has stirred outrage in the wider Los Angeles community. The Los Angeles City Council is offering a $75,000 reward for information leading to the arrest and conviction of the individuals responsible for the crime. But it is the people who actually saw McGraham on the streets over the course of 20 years who have been most affected by his violent end. Poignant notes have been left at a shrine erected at the site of his murder. "You didn't know me but I saw you on my frequent drives ... you touched me so deeply ... I am so sorry such cruelty took your life," read one letter. Another simply stated, "The neighborhood will not be the same without you." McGraham's sister Susanne was touched. "So many times when my family would go to see John, our hearts would be filled with so much sadness. My children would feel sad that we were leaving him all alone. I'm very grateful to hear that he was not alone, that his life had an effect on so many people in the neighborhood."
McGraham's death will be prosecuted as first-degree murder, a capital offense, according to Los Angeles Police deputy chief Charlie Beck. Even as she mourned, Susanne McGraham-Paisley said, "The people who did this to him did the cause of understanding homelessness a great service. Because the way in which they killed him and the way in which he died and the community's response has clearly shown that people do have an interest in someone like our brother."
The Task Force for the Homeless works in collaboration with the National Coalition for the Homeless to draft recommends to reduce violent crime against homeless people by including them as a protected class under federal hate crimes statutes.
Representative Eddie Bernice Johnson (D-TX) introduced the Hate Crimes Against the Homeless Statistics Act (H.R. 2216) and the Hate Crimes Against the Homeless Enforcement Act (H.R. 2217) in 2007. Co-sponsors are being sought to establish a base of support for action on them either as independent legislation or as provisions within larger hate crimes measures.

Over national, state, and local 150 organizations have endorsed H.R. 2216, including the National Law Center on Homelessness & Poverty, NAACP, National Gay and Lesbian Task Force Action Fund, United Methodist Church General Board on Church and Society, and Southern Poverty Law Center.

More information about NCH's policy recommendations can be found on their website : www.nationalhomeless.org.


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BELOW ARE A FEW NEWS AND EVENTS ARTICLES FROM OUR ARCHIVES THAT RELATE TO DIFFERENT ASPECTS OF POVERTY AND HOMELESSNESS...

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TIME MAGAZINE - DEFINING "HOMELESSNESS DOWN"

July 30^th 08 / Nathan Thornburgh

At a time when Americans are dealing with rising food and fuel prices, slowing jobs and soaring home foreclosures, is it really possible that homelessness is on the decline? Perhaps, but it depends on your meaning of the word homeless.

According to a report given to Congress on Tuesday by the U.S. Department of Housing and Urban Development (HUD), overall homeless numbers, taken from a one-day national count in January, were down 12% from 2005 to 2007, to just under 672,000 people, most of whom were on the streets only temporarily. Chronic homelessness is down even more, almost 30% lower than in 2005, from 175,000 to fewer than 125,000.

There is a rather large asterisk on the new data, however, the result of an ongoing effort to more narrowly define who is actually considered homeless. This is the third annual national HUD count, and in previous years, some cities had been counting families who were living two families to an apartment, for example, or those living in RVs, as homeless. This year, they weren't. This count, say the report's authors, is the most successful to date in tallying only those who were actually in shelters or on the streets — the official HUD definition of a homeless person.

This has advocates like Michael Stoops, the acting executive director of the National Coalition for the Homeless, saying that the rosy numbers are being produced in part for political effect in an election year. "It's kind of premature to say that there's less homeless people now because of all the great things that HUD and the Bush Administration are doing," he says. "Our grass-roots networks around the country haven't seen this kind of difference."

Of course, it's an advocate's job to keep the pressure on government by saying that the problem is still large and still needs attention. And even HUD secretary Steve Preston sounded a note of caution, saying in a release on Tuesday that there is a "long way to go to find a more lasting solution for those struggling with homelessness every day." Where the two sides disagree is whether a family of four who lost their home to the bank and is now couch-surfing with relatives should be considered homeless.

So why keep these vulnerable families out of the count? It's partially about the power of positive thinking. The number crunchers leading the federal fight believe that as long as Americans continue to perceive homelessness as an implacable problem, they'll never muster the will to help. But if the government can show that the numbers are actually relatively small — like the 125,000 chronic homeless they are now counting — then the public might just be up for tackling the issue.

Positive thinking is key to Housing First, which since 2000 has been the main innovation in President Bush's fight against homelessness. Basically, the idea is to identify the big users of government shelters and services and show voters that you can slowly herd them into permanent housing. With its emphasis on tangible gains and more rigorous data, it might as well be called No Transient Left Behind. And it has proven hugely popular with local politicians, like San Francisco mayor Gavin Newsom, who can boast about their measurable, if small, progress.

Dennis Culhane, the University of Pennsylvania professor who co-authored Tuesday's HUD report, says that Housing First is working. "What these data show," he told me, "is that when we make a targeted investment strategy focused on chronic homelessness, we can actually make measurable improvement."

Culhane says he's against expanding the HUD definition of homelessness. "There's a very large housing problem in this country," he says. "But shoehorning new people into the homeless category isn't going to make a hill of beans of difference. It's only going to dilute what we're doing." He points to the U.S. budget for homelessness, which is just $1.5 billion a year. That's barely enough to help fund the Housing First push; it's not going to bail out families caught up in the foreclosure crisis.

Culhane and HUD will win this argument for now. A bill supported by Stoops and other advocates that would broaden the federal definition of homelessness is stuck in committee in the House this week and is unlikely, Stoops says, to emerge intact.

But Stoops isn't wrong. If $1.5 billion isn't enough to help the victims of foreclosure as well as the people pushing shopping carts or sleeping in shelters, then the long-term solution doesn't lie in redefining who is actually homeless until there is a small enough number to be served by the budget. The answer lies in getting enough funding to help all of those who are, particularly in this brutal economic cycle, facing the prospect of having a job and a family but no home. Enough money to meet the challenge: that would be truly good news, no matter how you define it.

Hitting Home: New Faces Join Ranks of Homeless

By Stephanie Armour, USA TODAY

Time is running out for Tracy Mosely.

A single mother of five, Mosely is on the brink of homelessness after the house she's rented for a year fell into foreclosure and was sold at auction. Mosely, a part-time restaurant hostess, came up with $500 for a security deposit on another place. But she says all the landlords she's contacted want $1,000 or more.

She doesn't have it.

Lying on her bed in Florissant, Mo., flipping through the newspaper, seeking a place to move her family, Mosely says she's not sure if she has weeks or days before she'll be evicted. She may wind up, she says, in a homeless shelter.

"My blood pressure is sky-high," she says. "We'll be on the streets. I'm just lost about what to do. We were settled here, this was home, and the kids are looking at me like, 'Mom, please.' I told them I'm doing my best."

Mosely is one of the faces of a national real estate crisis whose most grievous victims are increasingly facing the ultimate fate: homelessness. With more families on the cusp of having nowhere to live, thousands of both former homeowners and renters are winding up in shelters or turning to charities for food or other aid to get by.

Nearly 61% of local and state homeless coalitions say they've seen a rise in homelessness since the foreclosure crisis began in 2007, according to a study released in April by the National Coalition for the Homeless.

According to the study, which let respondents offer multiple replies when asked where they're headed once their property is foreclosed on, 76% of displaced homeowners and renters are moving in with relatives and friends. About 54% are moving to emergency shelters. About 40% are already on the streets.

Those facing homelessness include the working poor, who were among those hardest hit by the collapse in subprime mortgages. But others are middle-class families who scarcely expected to find themselves unable to afford their homes.

"Shelters are full, and it's getting worse," says Michael Stoops of the National Coalition for the Homeless in Washington. "There are more homeless homeowners, people who first try to downsize, then wind up living with family and friends or in vehicles. At the shelters, there's almost no room at the inn. It's first come, first serve."

Six cities reported a rise in the number of homeless people who used emergency shelter and transitional housing programs in the past year, and 10 cities reported an increase in households with children seeking help, according to a 2007 survey done in part by the U.S. Conference of Mayors.

The report cites several reasons for the increase, with the rise in foreclosures at the top of the list. Many cities that have seen an increase in homelessness — among them Detroit, Portland, Ore., and Salt Lake City — have also suffered sharp jumps in foreclosures.

The Salvation Army, which provides transitional emergency and shelter housing, is reporting a surge in demand for homeless services. For the first time in memory, it's seeing the trend in such middle-class enclaves as Olathe, Kan., and Englewood, Colo. In Kansas City, the Salvation Army has opened shelters in middle-class communities that are serving more families and middle-income wage earners. In Anchorage, a shelter has expanded from six rooms to 16.

"Typically, if families lose their homes, unless they have relatives, they're scrambling," says Maj. George Hood, national community relations secretary for the Salvation Army. "We're really seeing an uptick in homelessness right now. You have to rescue some from sleeping in vehicles.
"They're embarrassed and don't want to ask for help. They've found themselves in situations they never expected, and you're also finding families and people with established homes out there on the street."

Foreclosure figures rising

The intensity of the foreclosure crisis helps explain why. For the first quarter of this year, the rate of new foreclosures hit 0.99%, the highest since record-keeping began in 1979, the Mortgage Bankers Association reported. About 2.47% of all mortgages were in some stage of foreclosure during those three months, another record. And more than 2 million foreclosures were reported in 2007, according to the National Coalition for the Homeless.

For some who've lost homes to foreclosure, charitable groups are a desperate alternative to living on the streets.

Take Judy Johnson, 46, of Sacramento, who works 10-hour days as a hair stylist. Johnson and her husband, Gregory, 52, had been living for eight years in a two-story, 3,000-square-foot home when he lost his job as a supervisor in waste management. He also developed diabetes, fell into a coma and was hospitalized for a short time. He is now recovered.

Judy, a mother of four, tried to support her family and make the mortgage bills on her single income because Gregory was unemployed. "We became paycheck-to-paycheck," she says.
Ultimately, the family fell behind on their payments. In December, the home was sold at auction, and the family had to move out. They had no savings left, Judy says, and no family or friends who could take them in. And they couldn't afford the security deposits of $2,000 or so that landlords were requesting.

"We were thinking we would have to separate the family; we had nowhere to go, nobody to help us," she says. "We were basically homeless. We were on the verge."

The tension caused Judy to overeat, and for her and her husband to fall into frequent arguments. But just days before they were to leave, the Salvation Army told them it could provide her with a security deposit on an apartment.

Some charitable groups will provide financial help, such as a rental deposit and money for groceries. The Salvation Army will provide assistance to people who meet certain qualifications. Clients meet with a case worker and provide information such as proof of residency, Social Security numbers of each person in the household, proof of income, statements of alimony and/or child support and lease agreements. A background check is often conducted, too.

"I was just sitting on the couch, and I was just sitting there lost, thinking, 'I have to figure out how to get all this stuff out,' and we had no place to go," Judy says. "I never thought I'd be facing homelessness. Some days, I couldn't focus on my job. The tension was so high in the house."
Now, they're in an apartment with three bedrooms, two bathrooms and a balcony to barbecue on. Judy says that after facing homelessness, she realizes that in today's wobbly real estate market, the same fate can befall almost anyone, even a middle-class two-earner family, as her own had been. Gregory is still looking for a job.

Rising prices a contributing factor

In addition to foreclosures, other factors are driving families to the edge of homelessness: mounting utility bills, the surge in gas prices and the rise in unemployment, which jumped from 5% to 5.5% in May, the government reported. Often, those factors make it harder for families to afford their mortgages — especially for those who bought homes with adjustable-rate mortgages that have reset to higher rates.

Foreclosures have been spreading to prime loans, the kind made to those with good credit. About 2.3% of prime loans were 60 days or more past due in April, the highest level in at least a decade, according to data issued by First American CoreLogic LoanPerformance. That's up from about 1.4% a year ago.

"There are people coming home from work, and their houses are boarded up," says Jean Beil, senior vice president for programs and services at Catholic Charities USA in Alexandria, Va. "They're working poor, middle class. Many were surprised when mortgages increased, and they couldn't pay it."

Homeless coalition and advocacy groups have called for steps to help ease the problem. Proposals include state laws requiring home foreclosures to be entered into courthouse records within 30 days of a foreclosure sale, which would help renters determine the status of properties. Another idea would require homeowners to provide potential tenants with information about a home, such as whether it's under foreclosure.

In addition, groups such as the National Coalition for the Homeless want all federally insured mortgages to protect tenants in case of foreclosure by allowing them to maintain their lease until it expires. In many cases, tenants who live in properties that are foreclosed upon may have little time before being forced to move out. They may also lose any security deposits they had put down.

Some advocacy groups also favor more federal oversight of the financial services industry. States have jurisdiction over non-bank mortgage lenders; the National Coalition for the Homeless argues that this system creates inconsistent regulatory standards.
Homelessness affecting schools

In the meantime, the effects of foreclosures and homelessness are seeping into public school systems that are now serving more children without permanent addresses. An estimated 2 million children will be directly affected by the subprime mortgage crisis as their families lose their homes to foreclosures, according to First Focus, a bipartisan children's advocacy group that issued the report. The April 2008 report indicates that foreclosures often result in disruptions to a child's education.

Losing one's home and having nowhere to go can also leave former homeowners emotionally wounded, seized by a sense of failure and shame. Others struggle to hold onto their pride and a fierce desire to avoid the help of charities or government services.

Sandra Wright, 37, and her three children and three grandchildren have lived in a rental home for about a year in Gary, Ind. The home has been foreclosed on, and she has until Friday to move out.

Wright, a housekeeper at a hotel, was worried that she'd wind up in a homeless shelter. But she's hopeful of finding another rental in time because the lender on the home is offering her $1,000 if she leaves the house by Friday.

"I was worried I'll wind up in a shelter," Wright says. "They could come and put everything out on the streets. I've been praying a lot. All you can do is pray."

29 States Faced Total Budget Shortfall of at Least $48 Billion in 2009

By Elizabeth C. McNichol and Iris Lav

Summary
At least 29 states plus the District of Columbia, including several of the nation’s largest states, faced or are facing an estimated $48 billion in combined shortfalls in their fiscal year 2009 budgets (which begins July 2008 in most states.) Two other states expect budget problems in fiscal year 2010, although some of those gaps may occur earlier than expected.

In general, states will close these budget gaps through some combination of spending cuts, use of reserves or revenue increases before they adopt a fiscal year 2009 budget. At this point in the year, some states have already adopted those budgets while other states continue to deliberate.[1] In order to present a complete picture of the impact of the current economic downturn on state finances, we report both the gaps that have been closed and those that will be closed in the future.

The bursting of the housing bubble has reduced state sales tax revenue collections from sales of furniture, appliances, construction materials, and the like. Weakening consumption of other products has also cut into sales tax revenues. Property tax revenues have also been affected, and local governments will be looking to states to help address the squeeze on local and education budgets. And if the employment situation continues to deteriorate, income tax revenues will weaken and there will be further downward pressure on sales tax revenues as consumers become reluctant or unable to spend.

The vast majority of states cannot simply run a deficit or borrow to cover their operating expenditures. As a result, states have three primary actions they can take during a fiscal crisis: they can draw down available reserves, they can cut expenditures, or they can raise taxes. States already have begun drawing down reserves; the remaining reserves are not sufficient to allow states to weather a significant downturn or recession. The other alternatives — spending cuts and tax increases — can further slow a state’s economy during a downturn and contribute to the further slowing of the national economy, as well.

The fiscal situation appears to be as follows.

Over half of the states have experienced budget problems.
The 29 states in which revenues have fallen short of or are expected to fall short of the amount needed to support current services in fiscal year 2009 are Alabama, Arkansas, Arizona, California, Connecticut, Delaware, Florida, Georgia, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nevada, New Hampshire, New Jersey, New York, Ohio, Oklahoma, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, and Wisconsin. In addition, the District of Columbia is expecting a shortfall in fiscal year 2009. The budget gaps total $47.5 to $49.3 billion, averaging 9.3 – 9.7 percent of these states’ general fund budgets. California — the nation’s largest state — also faced the largest budget gap. The shortfalls that states other than California face or faced average 6.2 to 6.7 percent of these states’ general fund budgets.

Analysts in two other states — Missouri and Texas — are projecting budget gaps a little further down the road, in FY2010 and beyond.[2]

This brings the total number of states identified as facing budget gaps to 31 — more than half of all states. The remaining 19 states did not foresee FY2009 budget gaps at the time of the survey either because their budgets remain strong or because they have not yet prepared updated revenue and spending projections for fiscal year 2009. The list of states facing budget gaps is likely to grow as state revenue forecasts are updated during the legislative session.

Some mineral-rich states — such as New Mexico, Alaska, and Montana — are seeing revenue growth as a result of high oil prices. Other states’ economies have so far been less affected by the national economic problems. This does not mean, however, that local governments in those states will escape fiscal stress. Some states with mineral revenues or with industries less affected by the national downturn have been affected by the housing bubble and could face widespread local government deficits.

In states facing budget gaps, the consequences could be severe — for residents as well as the economy. Unlike the federal government, states cannot run deficits when the economy turns down; they must cut expenditures, raise taxes, or draw down reserve funds to balance their budgets. Even if the economy does not fall into a recession as it did in the earlier part of this decade, actions will have to be taken to close the budget gaps states are now identifying. The experience of the last recession is instructive as to what kinds of actions states may take.

Cuts in services like health and education. In the last recession, some 34 states cut eligibility for public health programs, causing well over 1 million people to lose health coverage, and at least 23 states cut eligibility for child care subsidies or otherwise limited access to child care. In addition, 34 states cut real per-pupil aid to school districts for K-12 education between 2002 and 2004, resulting in higher fees for textbooks and courses, shorter school days, fewer personnel, and reduced transportation.

Tax increases. Tax increases may be needed to prevent the types of service cuts described above. However, the taxes states often raise during economic downturns are regressive — that is, they fall most heavily on lower-income residents.

Cuts in local services or increases in local taxes. While the property tax is usually the most stable revenue source during an economic downturn, that is not the case now. If property tax revenues decline because of the bursting of the housing bubble, localities and schools will either have to get more aid from the state — a difficult proposition when states themselves are running deficits — or reduce expenditures on schools, public safety, and other services.

Expenditure cuts and tax increases are problematic policies during an economic downturn because they reduce overall demand and can make the downturn deeper. When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals. In all of these circumstances, the companies and organizations that would have received government payments have less money to spend on salaries and supplies, and individuals who would have received salaries or benefits have less money for consumption. This directly removes demand from the economy. Tax increases also remove demand from the economy by reducing the amount of money people have to spend.

The federal government — which can run deficits — can provide assistance to states and localities to avert these “pro-cyclical” actions.

States Have Restrained Spending and Accumulated Rainy Day Funds

Many states have never fully recovered from the fiscal crisis in the early part of the decade. This fact heightens the potential impact on public services of the deficits states are now projecting.
State expenditures fell sharply relative to the economy during the 2001 recession, and for all states combined they remain below the FY2001 level. (See Figure 1.) In 18 states, general fund spending for FY2008 — six years into the economic recovery — remains below pre-recession levels as a share of the gross domestic product.

In a number of states the reductions made during the downturn in education, higher education, health coverage, and child care remain in effect. These important public services will suffer even more if states turn to budget cuts to close the new budget gaps they now anticipate.

One way states can avoid making deep reductions in services during a recession is to build up rainy day funds and other reserves. At the end of FY2006, state reserves — general fund balances and rainy day funds — totaled 11.5 percent of annual state spending. These reserves are estimated to decline to 6.7 percent of annual spending by the end of this fiscal year. Reserves can be particularly important to help states adjust in the early months of a fiscal crisis, but generally are not sufficient to avert the need for substantial budget cuts or tax increases.

Federal Assistance is Needed

Federal assistance can lessen the extent to which states take pro-cyclical actions that can further harm the economy. In the recession in the early part of this decade, the federal government provided $20 billion in fiscal relief in a package enacted in 2003. There were two types of assistance to states: 1) a temporary increase in the federal share of the Medicaid program; and 2) general grants to states, based on population. Each part was for $10 billion. The increased Medicaid match averted even deeper cuts in public health insurance than actually occurred, while the general grants helped prevent cuts in a wide variety of other critical services. The major problem with that assistance was that it was enacted many months after the beginning of the recession, so it was less effective than it could have been in preventing state actions that deepened the economic downturn. The federal government should consider aiding states earlier, rather than waiting until the downturn is nearly over.

End Notes:
[1] The states that we discuss here that have adopted budgets for FY2009 as of the writing of the report are Alabama, Connecticut, Florida, Georgia, Iowa, Kentucky, Maryland, Mississippi, New York, Oklahoma, Tennessee, Vermont and Virginia. In addition, Maine, Minnesota, New Hampshire, Nevada, and Wisconsin have addressed the shortfalls that developed in biennial budgets that were enacted last year. California has partially addressed its shortfall.
[2] Analyses prepared by the legislature or by nonprofit fiscal organizations in these seven states found that expected revenues will fall short of the amount needed to support current services. The appendix to this paper shows the sources of these analyses.