How will NJ cope?

From the WSJ:
Housing Slump Strains Budgets Of States, Cities
By AMY MERRICK
September 5, 2007; Page A1

Tremors from the housing market’s slump are straining the budgets of state and local governments from coast to coast, sending officials scrambling to plug gaps.

Rising defaults on subprime home loans are boosting the inventory of unsold homes and driving sale prices lower. That’s cutting into housing-related revenues from building-permit fees, taxes on contracting and recording property transfers, and even sales taxes.
…
In many cases, budget officials knew that the fast pace of housing-related revenue growth in recent years wasn’t sustainable, but the extent of the slowdown has sometimes surprised them. Unlike the federal government, states and local governments generally balance their budgets. That means sudden revenue shortfalls can translate into serious cutbacks in spending plans.

“Our forecasts for the last couple of years have been building in a decline” of revenue as the economy headed toward a soft landing, says Amy Baker, coordinator of the Florida Legislature’s Office of Economic and Demographic Research. “What we discovered, when we met in 2006 and then spring 2007, is that the decline was actually occurring more rapidly than we thought.”

Among other effects, the housing slump has caused a decline in revenue from real-estate transaction taxes, which are based on sales prices.

Such taxes typically account for a small percentage of state income, but can contribute enough for a sudden shortfall to turn a surplus into a deficit. Collections are down amid a decline in the overall number of home sales and an increase in houses in foreclosure, which typically are sold for less than homeowners might otherwise have received.

Sales-tax revenues have also declined, a side effect of the housing slump that has blindsided many states and municipalities. States are collecting less in sales tax — which can account for as much as 15% to 20% of their total revenue — partly because builders have cut back on buying construction materials and fewer homeowners have been withdrawing equity from their homes to remodel or buy furnishings. Homeowners struggling to pay mortgages have even less incentive to splurge. States blame weak real-estate sales for lower-than-expected spending on cars and other big-ticket items.
…
Their budget problems could worsen when property-tax assessments catch up with the rapid decline in housing prices over the past year or so, something that hasn’t yet happened in most parts of the country.
…
Lower assessments would cut into property-tax receipts, a crucial source of funding for local governments but which rarely account for more than 10% of state-level tax collections. “As a nationwide trend, you’ll probably start to see property-tax revenues begin to fall next year or the year after,” says Gerald Prante, an economist with the Tax Foundation, a nonpartisan research group in Washington.

Reduced assessments are already causing budget problems in some areas. In Virginia’s Fairfax County, where almost 60% of county general-fund revenue comes from real-estate taxes, housing prices fell last year for the first time in 10 years. Foreclosures have jumped, and the county wants to hire more appraisers to perform new assessments.
…
“People kept hoping that the good times would continue,” Ms. Baker says. “When the bubble has burst and we’re returning to more normal levels, and even a little below — it’s just a rude awakening.”