The Wall Street Journal leads its front page with a report saying that states are getting “slammed” with budget problems as tax receipts dry up.

The poor economy, with the housing bust leading the way, is causing state budgets to come up $40 billion short and forcing them to cut spending. The paper says revenue from income, corporate, and sales taxes has fallen. Cities are also getting hit hard by falling tax collections.

Unlike the federal government, most states are required to balance their budgets. Most have so far resisted tax increases, instead opting for raising prices on things like tolls and college tuition, and cutting back on services like education and health care. Some chose one-time measures such as tapping rainy-day funds that were built up in flusher times. That could lead to future cutbacks if the economy doesn’t bounce back in coming months.

States are cutting back on services and jobs, which will in turn hurt the economy further. States with the weakest housing markets, like California, Nevada, and Florida, are getting hit the hardest.

Bush tax rebate did little to spur spending

The Federal Reserve’s beige-book report from its twelve regional banks was bleak, with economic activity slowing across most regions and consumer spending poor almost everywhere despite the federal governments big tax rebate. The New York Times puts the news on C2 and the Journal on A16.

Manufacturing fell in most places, as did home markets, and prices rose with signs of more to come—something that usually doesn’t happen in recessions. The Times says the pullback in consumer spending could signal a sharp slowdown is coming once the tax breaks dissipate.

“Perhaps most troubling is that the massive tax rebates that were sent out during the April/mid-July period are having only a very limited effect on consumer spending,” wrote Brian Bethune, an economist at Global Insight, a research firm.

Costco shares were hit hard by a weak earnings report, saying its costs were rising sharply, but Amazon reported strong results, something the Times says may be because consumers are driving less.

Mortgage bailout moving through Congress

The House of Representatives passed a bill intended to shore up the battered housing market, along with Fannie Mae and Freddie Mac, the Times and Journal report on A1.

Bush said he would sign the bill in order to speed assistance to the economy. It would back up to $300 billion in home-loan refinancing and open the federal checkbook wide to backstop Fannie and Freddie, the mortgage giants. Congressmen and industry called it “the most important piece of housing legislation to come along in a generation.”

Lawmakers and experts described the legislation as a landmark shift in the government’s role in the housing market, extending a helping hand to both Wall Street and Main Street. They said it would rank in importance with the creation of the Home Owners’ Loan Corporation to prevent foreclosures in the 1930s as part of the New Deal, and legislation in 1989 responding to the savings and loan crisis.

The Senate is expected to pass the bill, which will raise the national-debt ceiling $800 billion to $10.6 trillion, in the next several days. Both papers question whether it will be effective.

Oil prices fall further, but don’t get too excited

The price of oil continued its recent slide, giving some much-needed relief to the economy, the Financial Times says on page one and the Journal on A3.

Oil prices have plunged 16 percent in the last two weeks, from $147 a barrel to $124. The Journal says the drop is easing pressure on the Fed to raise interest rates at its next meeting in order to put a damper on inflation, which is being driven in large part by energy costs. Still:

Officials aren’t taking great comfort yet in the latest pullback in oil prices. The oil market has been extremely volatile in recent years, sometimes showing false signs of stabilization.

The FT says the oil decline has led to decreases in other commodity prices, including food, as well, helping push stocks higher recently. The Standard & Poor’s 500 is up 5.5 percent in the last eight days.

The Times on C1 says a new survey says there’s lots of energy in the Arctic—maybe some 90 billion barrels of oil, enough to supply total world demand for three years, and even more natural gas.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.