State budgets get adrenaline shot from Cash for Clunkers

? Struggling states and towns got a dose of badly needed money this summer from a Cash for Clunkers program that poured hundreds of millions of dollars of tax revenue into their budgets.

Now, like the auto industry, recession-ravaged governments are seeing revenue fall off as car buyers take a breather from the frenzied sales of July and August. That means less money for schools, roads, public safety and other projects that get much of their funding from sales tax collections.

And while officials welcomed the shot in the arm, the extra clunkers money won’t come close to filling the gaping holes in their budgets or do much to solve the worst revenue downturn in decades.

“It is chump change,” said David Zin, an economist with the Michigan state senate’s fiscal agency.

State and city officials say their budget problems are too severe for one government program to fix.

“Fifty-thousand is not to be sneezed at,” Dean Rich, finance director of O’Fallon, Ill., said of the city’s expected tax gain from its 16 car dealerships. But it’s not enough to prevent a job freeze and cuts to capital projects for the town of 29,000 people.

“It’s not the windfall that is going to fix the $1 million shortage we have this year,” he said.

Like most governments, O’Fallon suffered during the recession as people facing job losses, reduced pay, lost homes and general unease over the economy snapped their wallets shut. That means big drops in sales tax, which makes up around half of many state budgets. Sales of cars and trucks, big-ticket items with high price tags, are a big component of sales tax collections.

Cash for Clunkers held some promise — customers bought nearly 700,000 new vehicles during late July and August, taking advantage of rebates of up to $4,500 on new cars in return for trading in their older vehicles. The program ended up tripling the size of its original $1 billion price tag due to its broad popularity. For government budget offices, that represented some rare good news.

The auto forecaster Edmunds.com estimated that the average clunker sales price was $26,321, meaning roughly $18 billion worth of new vehicles were sold under the program. Multiplied by the average combined state and local sales tax of 7.5 percent, the total tax bill amounts to a loose estimate of $1.36 billion.