The big national headline this morning is another contraction in the economy, which shrank by 6.1 percent in the second quarter. The New York Times says the economists had predicted a 4.7 percent decrease. Around the country, however, legislators are figuring out how to deal with their own shrinking budgets, and how to allocate stimulus funds that will arrive early next month.

The Montana legislature has reached a compromise on a bipartisan budget bill that will increase spending by 1.6 percent, according to the Billings Gazette. The bill included $880 million from the stimulus, and an op-ed in the Montana Standard applauded that the budget will result in a $250 million surplus for the state. A lucrative deal between a Butte company and the Air Force is one step closer to becoming reality. The National Center for Health Care Informatics may create “advanced computer-simulated training environments for Air Force combat rescue specialists. Informatics would design virtual worlds made to resemble real-world environments, run on the new Butte supercomputer, which could serve as simulated training scenarios for the pararescuemen.”

Trouble in paradise: The Honolulu Advertiser reports that tourist volume is down for the thirteenth straight month. The decrease amounts to just under 20 percent. Car sales are expected to fall by 20 percent in the coming year. And, Hawaii too has its own Ponzi scheme. The FBI is trying to recover the more than $300 million mortgage broker James Lull stole from his victims.

In Connecticut, legislators are debating just how to spend the $745 million alloted to the state’s schools. The Hartford Courant analyzes the conflict between lawmakers who want to the money as a stopgap to maintain funding levels at schools around the state, and those who would like to use part or all of the money to innovate and reform the Nutmeg State’s education system.

Further up the Atlantic coast in Maine, federal funds are the talk of the Bangor Daily News. The state will receive $4.3 million for fish and wildlife conservation. This money will go to support and renovate hatcheries and fund hiking trail maintenance. Next month, Maine will see the first of its education stimulus money. The state will receive $129 million over the next two years and will use the funds to avoid cutting programs. High school students may also receive laptops. A state effort to revive the downtown area of Milo has yielded a $150,000 grant to help local businesses spruce up their facades for a more unified look. Meanwhile, the state government is facing a $575 million deficit, according to the Times Record.

Bankruptcy and foreclosure are the order of the day in Minneapolis-St. Paul. The Star Tribune finds that people holding regular mortgages, not just subprimes, are now headed toward foreclosure. Middle class families cited job loss and reduced incomes as the cause. Meanwhile, the McKnight Foundation will lend the state $10 million to help “repeople” foreclosed properties in and around the Twin Cities. The money will take “the form of loans that will primarily be re-lent to nonprofit developers to buy and rehab foreclosed homes for sale to new owners.” Finally, there’s a complicated bankruptcy case involving Polaroid, which has been going out of business for years, and a $3.5 billion Ponzi scheme operated by owner Tom Petters. Shake it!

Two downward facing statistics out of Salt Lake City, Utah. The Salt Lake Tribune reports that homes have lost 6 percent of their value since the top of the market two years ago. And the state budget will shrink by $17 million. The sheriff’s office, the district attorney’s office, the parks department, and senior-citizen services will be trimmed.

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Katia Bachko is on staff at The New Yorker.