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Home Publications Blogs Beat the Press State Financing Crisis: Big News, the Stock Market Fell in 2008

State Financing Crisis: Big News, the Stock Market Fell in 2008

Thursday, 06 January 2011 11:37

Both the New York Times and the Washington Post decided to make major news stories out of a new Census report on state finances for fiscal 2009. Both papers highlighted a reported 30 percent decline in revenue for the year.

While this might sound like a terrifying plunge, the bulk of this reported decline in revenue was attributable to the loss in value of investments held by the states, most importantly stock held by their pension funds. The fact that the stock market fell in the 2009 fiscal year (June 30, 2008 to June 30, 2009 in almost all states) is not exactly news. The S&P 500 fell by 27.9 percent from the end of June, 2008 to the end of June, 2009. 

Furthermore, it would have been worth pointing out that this plunge has been largely reversed. The S&P rose 12 percent during the states' 2010 fiscal year and its most recent close has brought the market almost back to its June 2008 level. In other words, the plunge in revenue that is the highlight of these articles has already been almost completely reversed by the subsequent rise in the stock market.

This does not mean that the states do not still face serious funding shortfalls. Revenue has been hard hit by the recession and stocks still have not provided the return that was anticipated, meaning that pensions do face shortfalls. However, it would have been helpful to readers to point out that the plunge in investment values has been been reversed rather than to highlight this plunge as a major cause for concern.

Hat tip to Gary Burtless.

Comments (3)Add Comment
written by PeonInChief, January 06, 2011 1:37
What is killing state governments is (a) the plunge in wages with unemployment (b) the plunge in sales (see a) (c) the collapse of property values and (d) the increased need for services provided in full or in part by state governments (see a). Pension shortfalls are in some cases a problem, but they can be addressed over time. The other problems are right here, right now.
nailed it
written by what happened to the first name I registered, January 06, 2011 4:45
PeonInChief nailed it. It's the lack of jobs, Stupid!! How do we get the government (Federal, State, Local) to understand this?! Or do they already understand it and just done't care?
written by bakho, January 07, 2011 6:49
Indiana Treasurer Richard Mourdock revealed that his state's police and teacher pension funds have lost millions of dollars in the Chrysler "restructuring." Indiana's State Police Fund and Major Moves Construction Fund, which finances roads and bridges, together lost more than $1 million. And the Teacher's Retirement Fund "suffered, at a minimum, a loss of $4.6 million.

Political know nothings charged with managing these funds made bad investments on the bad advice of well connected political special interests.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.