It is amazing how quickly things can change in the span of a few years. Looking back to summer of 2007, the New York Stock Exchange’s Dow Jones Industrial Average (DJIA) was near its all-time high (14,000.41 on July 19th, 2007). Home prices, while softening somewhat, were still in the stratosphere. The U.S. unemployment rate was 4.7%. And the Kansas State General Fund ending balance for fiscal year 2007 was over $750 million. Subsequently, as we all know too well, Kansans have lost money in their investments and homes, some of us are losing our jobs, and the Kansas State General Fund budget is now awash in red ink. We will have tough economic challenges for several months, if not years, to come.
Nationally, nearly $9 trillion has simply vanished from our economy in 18 months. Americans’ retirement assets have dropped from a high of 10.3 trillion in 2006 to $8 trillion in mid-2008. Savings and investments assets have lost $1.2 trillion while pension assets have lost $1.3 trillion. Total U.S. home equity has dropped from a peak of $13 trillion in mid-2006 to $8.8 trillion in mid-2008. Most disturbingly, for the week of December 8th, 2008, 573,000 first time unemployment claims were filed (the highest level in 26 years), resulting in a December 2008 U.S. unemployment rate of 7.2% This means that more jobs were lost in 2008 than in any year since World War II. Some economists are now predicting 9% or higher U.S. unemployment by the end of 2009.
These national trends are seriously impacting revenue sources for the Kansas state government. Per the November 2008 consensus revenue estimates, the Kansas budget deficit for fiscal year 2009 is now approximately $142 million. Much more ominous, however, is the approximately $1 billion shortfall staring Kansas legislators in the face as they begin putting together the 2010 budget. With no economic relief in sight, the Kansas Legislature will be evaluating all spending programs to determine the least painful way to balance the 2009 and 2010 budgets. It will be critically important to avoid hurting those programs that will help our state’s economy rebound; likewise, legislators must avoid the temptation to simply pass the shortfall onto Kansas cities and counties.