Daniel B. Wood

States Feeling the Pinch From Bush Economy

Florida is working in special legislative session to cut property taxes as a way to stimulate consumer spending.

Nevada has called for a 5 percent cut in the budgets of all state agencies.

Michigan has expanded its sales tax to cover luxury services such as massages, manicures, and skiing, which were not taxed previously, and has increased the income-tax rate from 3.9 percent to 4.35 percent.

With at least a quarter of US states collecting less money than anticipated from sales taxes, and many others barely holding even with inflation in their overall revenues, state budgets appear to be headed for tough times, say several economists. Closing the gap may require states to use creative measures, these same economists predict. With a falling housing market, several experts see troubling economic warnings similar to those that preceded the US recession in 2001.

This time, they say, states would probably be on shakier ground because they won't have the years of fat that the 1990s stock-market boom provided.

"Many of the indicators, from sales-tax receipts to national debt to purchase of US treasury bonds, are similar to the year 2000," says Philippa Dunne, a co-editor of The Liscio Report on the economy. "But this time, states may have to take more drastic measures because they won't be coming out of a decade in which they had tons of money."

Why housing market downturn is key sign

The receding housing boom is affecting nearly every state and is a key indicator, say Ms. Dunne and others, because it produces a domino effect, colliding with the consumer purchases that feed state treasuries via sales taxes. On average, about one-third of state income comes from sales taxes on consumer items.

"When people are not buying homes, they are not buying appliances and furniture and other big-ticket items to go inside them," says Robert Ward of the Rockefeller Institute of Government in Albany, N.Y.

Also related to the diminishing sales-tax receipts is the dwindling equity in homes, exacerbated by the raft of foreclosures nationwide. Nevada, Florida, California, Arizona, and Michigan have been hit the hardest by declines in the housing market according to the number of houses and condos bought and sold.

"People use the equity in their homes as a cash machine by taking out additional home- equity lines … and when that is gone or tapped out, it means smaller lending support for consumer spending for all goods," says Mark McMullen, a senior economist in Portland, Ore., for Economy.com. "There is going to continue to be a headwind for consumer spending and job gains, both of which weaken the state tax base."

Both stock market and state spending up

Others are more sanguine, noting two trends: The stock market is doing well, and state spending in 2007 grew 8.6 percent over the previous year, two points above the 30-year average.

"Many states say they are experiencing uncertainty and a heightened awareness over dropping revenues, but no one to date is ringing the bell to say we are in deep trouble," says Arturo Perez, an economist with the National Conference of State Legislatures.

What most bears watching is the intangible factor of consumer confidence. "Tax collections can change overnight with good news or bad," he says. "The extreme was 9/11, but there are other things like unexpected jumps in unemployment claims, a drop in the stock market, a rise in oil prices, international instability, or a combination. We have not yet seen a rise in unemployment or a decline in the stock market."

Nevada loses big source of revenue

But states report that the general drop in consumer confidence nationwide is having an effect in their state. Clark County, Nev., for instance, has seen housing values drop as much as 20 percent, as reported by the Las Vegas Sun. A falloff in out-of-state visitors to Nevada casinos has socked one of the state government's biggest sources of income: gambling.

"People's perceptions of their net worth have dropped, and they continue to be bombarded by media saying everything is headed south, which affects consumer confidence," says Reese Tietje, chief planner of the Nevada Department of Administration.

Besides dwindling sales-tax receipts, Mr. Tietje reports that what Nevada's government has collected from gambling operations was off 4.41 percent in August 2006 compared with August 2007 - nearly $50 million in just the month of August. Nevada has announced a freeze for all state hires and is asking every state agency to reduce its budget by 5 percent. Those include cuts of $50 million for the Department of Health and Human Services and $30 million by the state university system.

California signs deal to expand gambling

Part of Nevada's reduced gambling income and tax receipts comes from changes next door in California, observers say. When times get tough, many stop crossing the border to gamble in Las Vegas's ritzy casinos, opting instead for smaller Indian casinos in their own area. California Gov. Arnold Schwarzenegger (R) recently signed a pact with Indian tribes that will expand gambling in the state in an effort to close a $6.1 billion budget deficit. Such operations are expected to produce $9 billion in revenue for the state's treasury over 20 years.

Besides scrambling to cut corners, states expect to tap into rainy-day funds, but they won't have the option of billions in tobacco-company settlements that helped to bail them out when things started getting tough in 2001. One-time fixes, however, will not be enough to bail out many states.

Michigan, for one, is struggling with a poor economy, resulting mostly from losing 300,000 auto industry jobs in the past seven years. After failing to close a $1.7 billion gap by Oct. 1, the state government partially shut down. The legislature helped end the shutdown in the early morning by agreeing on two new measures: an expanded sales tax and a rise in income tax. The taxes will cover only about $1.3 billion of the budget shortfall, says Leslee Fritz, spokeswoman for the Michigan State Budget Office.

Should People Be Allowed To Smoke at Home?

After retiree Judy Wilson moved from Georgia back to her hometown of Sault Ste. Marie, Mich., in 1997, life was sweet: Fresh air, beautiful scenery, quiet neighbors.

A year later, a heavy smoker moved in across the hall at Ms. Wilson's second-floor apartment in Arlington Town Apartments. Wilson says her life changed.

"I started having all kinds of breathing problems and eye irritations," says Wilson, a retired assembly-line worker. After maintenance personnel tried and failed to stop the smoke in several ways, including ventilation changes, air filters, and intake fans, she was moved to an apartment down the hall. Everything was fine -- until more smokers moved in across the hall. "My doctor told me ... that I'd better move away from it or else," says Wilson.

As similar scenarios play out in apartment and condominium complexes across the country, they are resulting in a new frontier in antismoking policies: private dwellings.

Not only are some condos and apartment houses banning smoking inside private units, but there is talk in Belmont, Calif., of a city law next month that would mandate that all complexes keep a portion of their units smoke-free.

The war against smoking first ramped up in the 1980s when some of America's public buildings became smoke-free. Then, in the 1990s, a slew of restaurants and bars in US cities banned smoking.

Now, seniors are leading the way in the new battle in part because many live in communal environments and they feel they are susceptible to the health and safety hazards of smoking.

"The primary drive for smoke-free housing in America is coming from the elderly," says Jim Bergman, director of the Smoke-Free Environments Law Project in Ann Arbor, Mich.

Smoke-free policies in private dwellings are also taking hold because state and federal laws do not protect smokers in the same way that they protect people from discrimination based on race, ethnicity, and national origin, say experts. But banning a legal behavior in someone's own home is an intrusion of privacy that could set a dangerous precedent that, taken to extremes, could allow government to regulate too much in private life, opponents say.

Smoking can also be safety issue, particularly in close quarters, some say. "There is a great deal of growing interest in the senior housing community about senior smokers because seniors become forgetful and careless about smoking," says Serena Chen, policy director for the American Lung Association of California. Although cigarettes cause 10 percent of apartment fires, 40 percent of apartment fire deaths are attributed to smoking. Such fires cause death because they occur while more people are asleep.

Giving more teeth to the push is a finding in the US Surgeon General report last June that there are no safe levels of secondhand smoke. Last year, the California Air Resources Board declared secondhand smoke to be a toxic air contaminant on par with other industrial pollutants.

For their part, condo and apartment owners are beginning to realize the additional costs of getting units ready for new tenants after smokers have lived there.

Across the state of Michigan,12 of 132 housing commissions have banned smoking in multiunit apartments and condos in the past two years, Mr. Bergman says. Two-and-a-half years ago, no one could find a smoke-free apartment listing anywhere in the state; now there are more than 5,000, he says.

About two or three public housing commissions in Michigan are adopting smoke-free policies each month; elsewhere in the US, Bergman says, perhaps another one commission per month is doing the same. So far, that means that the public buildings owned and run by such commissions -- such as Arlington Courts in Sault Ste. Marie -- are taking such actions voluntarily.

But that could change next month in California. In Belmont, the city attorney and city council are expected to break new ground by passing a law that affects all public and private apartment and condominium owners in the city, requiring them to adopt smoke-free policies for a certain percentage of their units.

"Belmont will be watched nationally to see how far it goes in requiring apartment owners to have smoke-free policies," says Bergman. "Since no other city has passed a law requiring private apartment owners or condo associations to have a percentage of their units be smoke-free, this will be unique in the nation and other cities will seriously consider taking the step as well."

If Belmont's and Michigan's measures are being fueled in part by statistics showing that 80 percent of Americans don't smoke, they are also drawing ire from many among the 20 percent who do. Smokers wonder where they'll be allowed to smoke if new laws proliferate. Even top proponents of smoke-free policies question whether scientific evidence overstates the dangers of being exposed to secondhand smoke, and chases smokers into an ever-shrinking portion of the great outdoors.

"There really is no evidence that even a fleeting whiff of cigarette smoke will give you lung cancer, but that's how proponents of these policies seem to be advancing their cause," says Jacob Sullum, senior editor at Reason Magazine, who authored a book about the antismoking movement.

If smokers are banned from apartments and condos, parks, and other public spaces, the only space left for them to smoke will be single-family homes, a place where children reside. "The next angle we are going to see on this is how to protect children from respiratory problems in the home, and that is not the kind of place where I think the government ought to be intervening," says Mr. Sullum.

Latino Politicians Gain Ground

The election this week of Mexican-American Antonio Villaraigosa as mayor of Los Angeles is the latest exclamation point in a story of Hispanic political empowerment that has been unfolding steadily nationwide for more than three decades.

The high-profile ascent of Mr. Villaraigosa to the top of America's second-largest city builds on steady gains by Hispanics in municipal, county, state, and national governments over the past 25 years.

Political analysts mark those gains by comparing the political landscapes of Henry Cisneros, who was elected mayor of San Antonio in 1981, and that of two U.S. senators, Mel Martinez of Florida and Ken Salazar of Colorado, elected in 2004.

Between those political bookends, the number of elected Hispanics has grown 30 percent in the past eight years, from 3,743 in 1996 to 4,853 in 2004.

While Hispanics still don't exercise their rights at the ballot box in the same percentages as they fill the American population, such gains, punctuated by the Villaraigosa victory, reflect the nation's changing cultural and social makeup -- and Hispanics' growing ability to appeal to an ever-widening range of ethnic groups. Many such groups of newer immigrants -- Koreans, Pacific Islanders, Armenians, Iranians, Russians, Filipinos -- embrace the new Hispanic politicians because they sense fresh openness to their own struggles, observers say.

"The new political face of America is looking South and West for its emerging identity rather than to Eastern Europe as it did in the country's first big wave of immigration," says Antonio Gonzales, president of the William C. Velasquez Institute, a Latino-based think tank. "Many of the emerging immigrant populations see Hispanics as accessible and open to them in the way more traditional American politicians have not been."

The Hispanic gains also reflect America's demographic evolution -- and not just in L.A. While the number of Hispanics has grown nationwide (to 35.3 million -- surpassing blacks as the nation's largest minority) the number of Hispanic voters has doubled (from 5 million to 10 million) in the past 10 years. That has brought emerging Latino populations -- and politicians -- to states outside the Southwest, including Illinois, and New Jersey which have seen rises of 95 percent and 209 percent respectively in the number of statewide elected Hispanic officials.

"Part of the story of growing Hispanic political clout is Hispanic's demonstrated ability to put coalitions together nationally, and organize voters from Kansas to Colorado to Florida," says Marcelo Gaete, senior analyst for the National Association of Latino Elected and Appointed Officials (NALEO). "They are not just thinking in terms of Texas, California, Arizona, and New Mexico anymore."

Within this context, Villaraigosa's significant victory, winning 59 percent of the votes, is being trumpeted paradoxically as both a major symbol of Hispanic empowerment -- a big-city win softening the doubt generated by recent losses of Hispanic mayoral candidates in New York and Chicago -- and an indication of normalcy.

At the same time, analysts say the win is meaningful to Hispanics coast to coast as a political model to emulate. Yet to others, Villaraigosa's win is unexceptional because of its sheer predictability.

"I call it the hidden integration of the Latino presence," says Harry Pachon, director of the Tomas Rivera Policy Institute at the University of Southern California. "In a way, it's just as American as apple pie. Just as in earlier decades Irish, Italians, and Jewish politicians made it into the mainstream, Latinos are now experiencing that. One of the jewels in the crown of America's most populous state will now be held by a Latino."

Yet for all the euphoria surrounding Villaraigosa in some quarters, his victory may be as much a repudiation of incumbent James Hahn as it was an embrace of Villaraigosa. During the campaign, Mr. Hahn was criticized for alienating African-American voters when he fired a black police chief and for angering white voters in the San Fernando Valley when he opposed a secession. Ongoing charges of corruption also trailed Hahn while other observers noted that he simply lacked the charisma to connect with voters in a city devoted to entertainment.

While Villaraigosa captivated audiences with his style and retelling of his climb from a high school dropout to successful politician, the new mayor still must prove he can transfer charisma into managing one of the largest cities in the nation.

The other side of high-profile victories for Latino politicians, say analysts, is that the brighter spotlight can also show deficiencies. Front and center in that challenge is Villaraigosa who has spent months making promises to diverse groups of voters and must now turn them into action.

"One thing people have not paid much attention to is the distinction between an electoral coalition and a governing coalition," says Frank Gilliam, a political scientist at UCLA. "The question is what happens now when those politicians who endorsed him, the unions and all the rest, line up and say, 'What are you going to do for us?' "

A subset of this challenge is one that faces all politicians: Can he or she govern for all voters, and not just those who helped secure the victory? In Villaraigosa's case, he will have a national spotlight on his efforts to balance the expectations of Latinos and non-Latinos.

"The key to continued expansion of Hispanic political power will be how can they respond to the Hispanic support that got them into office, [and] also reach beyond it," says Christine Sierra, a professor of political science at the University of New Mexico. "Villaraigosa will be in the spotlight in this regard more than most."


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