State and local governments suffered because they were sleeping at the wheel as the financial crisis and changing financial conditions evolved around them. Here in Wisconsin the result was furloughs in the state government and Milwaukee county, and cutting back of services.
There are still several headwinds for the United States, and all of us. The immediate threat is the European sovereign debt crisis. Additional threats include a slowing Chinese economy, a looming recession in the eurozone, still declining home prices, and the decline in real (inflation-adjusted) income growth of US households. The US economy has improved but is not firing on all four cylinders- rather simply stuttering along at a slow pace. For example, weekly jobless claims are still quite high (oscillating on either side of 400,000) and consumer confidence is still low. The US service sector, which accounts for about two-thirds of the gross domestic product, is just barely above the contraction level. Each of these threats can easily lead to the reversal of the anemic recovery.
It is critical for chief executives of state and local governments to be aware of macroeconomic risks and be proactive not retroactive (or have no action at all). They simply cannot be complacent. Moreover, these are not times when one can make a budget and then wait for the next budget year, while things change such that the budgetary projections that were made are no longer valid, and all one can do is wring hands and sign layoff and furlough notices (memory check --Wisconsin and Milwaukee county). In summary, state government executives should have the ability and foresight to foresee and be prepared for the unexpected.
i will keep an ever-vigilant eye on evolving economic conditions and adapt the state's finances as necessary.