From coast to coast, state and local governments are coming face-to-face with the consequences of turmoil in the nation’s housing and financial markets, as tax collections are falling well short of expectations and are opening up substantial budget gaps. The country’s two Washingtons -- the city of Washington, DC and the state of Washington -- provide two troubling examples. Last month, Washington State’s Economic and Revenue Forecast Council announced that it was reducing its revenue projections by $530 million, bringing the anticipated 2009-2011 budget deficit to $3.2 billion. Similarly, Washington, DC’s Chief Financial Officer, Natwar Gandhi, revealed at the end of September that the District would likely face a deficit of roughly $131 million in fiscal 2009. Fortunately, sensible solutions to these problems are available. Both the Washington Budget & Policy Center and the DC Fiscal Policy Institute have offered outlines for addressing the respective shortfalls, including using a portion of existing reserve funds, reconsidering ineffective tax exemptions or incentives, and at least temporarily raising taxes. You can read their recommendations here and here.
