Repurcussions of the Recession on State and Local Government

The economic recession impacts people in many ways. There are direct effects if one is laid off, owns a business that is seeing declining sales, and so on. The federal government sees a reduction in tax revenues and an increase in some expenditures automatically. These are called automatic stablizers and are in place to cool things down when the economy is booming and to stimulate the economy when output is falling. The federal government doesn't have a binding budget constraint so changes in income and expenditures don't have to match.
Things are different for most state and local governments. They usually have mandated balanced budget requirements, at least for operating expenses. State and local governments tend to rely on the sales tax as an important source of income. But, when consumers are not buying so much because of reduced incomes, sales tax revenues fall, leading to cuts in programs. The Wall Street Journal has an article today, in which it discusses the sharp drop in sales tax revenues impacting many states and local governments.