Arizona is on the brink. Their crisis is arguably the worst in the US. To put things in perspective, Arizona faces a budget shortfall of 30% in 2009. California, the poster-child for pauper states, has a shortfall of only 26%, according to this LA Times piece.

How will Arizona make up a 30% shortfall? They can’t count on the Federal Government to bail them out (yet, anyways). So public services will be slashed, as raising taxes to the extent required seems politically untenable.

If it gets bad enough, the Feds may eventually step in and bail out states as part of a larger decision to print our way out of the problem. But that seems at least a couple years away.

Housing Bubbles and Debt

The aftershocks of a huge housing bubble are still lingering in the Southwest, especially Arizona. According to housingwire.com:

Phoenix’s median paid price per square foot equaled April’s at $64. That number is down 46.3% from last year and has dropped 62.6% from its peak in June 2006 at $171, but according to the DataQuick report, May’s median prices represent a flattening trend.

No, that’s not a typo. Phoenix’s median price per square foot is down 62% from peak. This has had a crushing effect on consumer spending and state tax revenue.

I don’t know how this will all play out, but it’s not going to be pretty. Nevada and Florida are hot on CA and AZ’s tail. These are the first of a wave of state budget crises to come, as people slowly come to the realization that ever-increasing budgets don’t mesh with an economy in depression.