As I was charged $1.50 today for using another bank’s ATM, I thought…

A lot has been made about the impact of the weaker housing market on consumer spending:

>The question, though, is just how much consumers will restrain their free-spending ways. Research by economist Carroll suggests that every $1 decline in house prices lops about 9 cents off of spending. The current value of residential housing is about $21 trillion, according to the Federal Reserve. So if home prices fall by 10%, as many people expect, that would lead to roughly a $200 billion hit to spending over the next couple of years. A 15% tumble in home prices would produce a $300 billion pullback in spending, or about 3% of personal income.

>That accords well with calculations by BEA economists. They figure that households took out $340 billion in cash from mortgage and home-equity financing in 2006. That source of funding could largely disappear over the next couple of years.

The California Governator [-10%] ordered all departments to plan for significant budget cuts because of the weakening housing market.

>In response, Schwarzenegger’s finance department has ordered agency directors to formulate plans to cut budgets by 10% for the spending blueprint the governor will unveil in January, according to administration officials who spoke on condition of anonymity. That would mean substantial cuts in all state programs, including education, transportation and healthcare, the officials said.

NYC Mayor Bloomberg [-2.5% to -5%] issued a hiring freeze and curbs on spending due to a weakening economy.

>It is the first time officials have resorted to a citywide plan to make cuts since October 2002, when the budget was still reeling from the aftershocks of the Sept. 11 terror attack. Since then, the city’s superheated real estate market and fat payouts on Wall Street have led to surpluses, including a record $4.4 billion in the last fiscal year, which allowed the mayor to increase spending and services while cutting taxes and offering rebates.

Reduced transfer taxes, real estate taxes and other housing related revenues may cause many local and state governments to pull back spending that may have ballooned during the housing boom. If governments don’t react quickly enough, taxes will need to be raised to make up the shortfall.

The ATM like behavior of local government is an economic element of the weakening housing market across the country that doesn’t get much attention.