Spring 2010 issue of Horizons

INDUSTRY u Public sector

The Recession Is Over?

By Kaleb Lilly, CPA

The recession is over? This may not be the case for many state and local governments. Sure, many economists have declared the recession over and the economy on the rebound, but for state and local governments the recession may have only just begun. We often hear of the trickle-down effect; to a state or local government that means the brunt of the recession takes a little longer to hit home. Property and sales tax revenues, on which many governmental entities depend, take time to catch up with a depressed economy. Pressure on the housing market in recent years has driven property values down, which in turn has driven down a key revenue source for many local governments. Fortunately, real estate values in the Midwest were not impacted as severely as many markets on the East and West Coasts. However, as consumers remain cautious, the recovery of sales tax revenues looms further out on the horizon. In short, many local governments are going to be faced with some tough decisions. During previous economic downturns, many governmental entities were able to employ tactics such as reductions in workforce, increased borrowing, tapping into fund balances and deferring pension payments. How effective will these measures be going into the next decade? For governments with a history of conservative spending and lower levels of long-term commitments, these tactics could be effective in weathering this economic storm.

51 u spring 2010 issue