Thread: States face deeper and deeper cuts to balance budgets

States face deeper and deeper cuts to balance budgets

By Jennifer Steinhauer
Published: November 17, 2008

LOS ANGELES: Two short months ago, lawmakers in California struggled to close a $15 billion hole in the state budget. It was among the biggest deficits in state history. Now the state faces an additional $11 billion shortfall and may be unable to pay its bills this spring.

The astonishing decline in revenues is without modern precedent here, but California is hardly alone. A majority of U.S. states - many with budgets already full of deep cuts and dependent on raiding rainy-day funds or tax increases - are scrambling to find ways to get through the rest of the year without hacking apart vital services or raising taxes.

Some governors, including Arnold Schwarzenegger in California and David Paterson in New York, have called special legislative sessions to deal with the crisis. Others are demanding hiring freezes and across-the-board cuts. A few states are finding their unemployment insurance funds running dry, just as the ranks of out-of-work residents spike.

The plunging revenues - the result of an unusual assemblage of personal, sales, capital gains and corporate taxes falling significantly - have poked holes in budgets that are just weeks and months old and that came about only after difficult legislative sessions.

"The fiscal landscape," said H.D. Palmer at the California Department of Finance, "is fundamentally altered from where it was six weeks ago."

In Michigan, to reduce overtime costs, fewer streets will be salted this winter. In Ohio, where the unemployment rate is more than 7 percent, the state may need a federal loan for the first time in 26 years to cover unemployment costs. In Nevada, which is almost totally dependent on sales taxes and gambling revenue, a health administrator said the state may be unable to pay claims in a few months.

In California, Schwarzenegger, a Republican, and state legislators are preparing to do battle over a proposed 1.5-cent sales tax increase, while in New York, Paterson, a Democrat, has proposed $5.2 billion worth of cuts, principally to Medicaid and education.

Even states where until recent months natural resource production has provided a buffer - and fat surpluses - are experiencing a sudden reversal of fortune as oil prices have declined.

"Frankly, I thought 2001 was really awful," said Scott Pattison, the executive director of the National Association of State Budget Officers. "It is even worse now."

He added, "This fiscal year will be really bad, and what is unfortunate is that I can't see how 2010 won't be bad too."

In keeping with recent economic trends, the states with the worst budget problems are those where large housing booms morphed into a large-scale mortgage crisis over the past two years.

The current-year budget gap in Rhode Island represents more than 11 percent of the state's entire general fund, in large part because of the high number of subprime loans. The story is similar in Arizona, California, Florida and Nevada.

In addition, the crisis in the financial markets had immediate and widespread impact on state budgets. States have lost revenues from capital gains taxes and bonuses that have evaporated, and growing job losses have reduced state income taxes while draining unemployment funds.

"What we are seeing is when fewer people are working there is less income tax and less spending," said Keith Dailey, a spokesman for Governor Ted Strickland of Ohio, a Democrat.

Americans have also stopped shopping, which has hurt states that are heavily reliant on sales taxes, like Florida and Arizona. States that rely on tourism, like Nevada and Hawaii, have also been hurt by less consumer spending.

Further, the national credit crunch makes it harder for businesses to get loans, which trickles back into losses to states. When California was temporarily unable to gain access to the credit markets in the days leading up to the federal bailout package, state budget directors across the country noted the moment with horror.

The state's brief inability to pay bills because it could not get credit - California, like many states, regularly borrows when it is short of cash in anticipation of revenue later - has since been largely interpreted as an outgrowth of the much larger national and international credit crisis. Still, some budget experts said the problem could be a harbinger: Cities and counties with poor credit ratings could be cut off in the coming year, and there could be higher costs for issuing bonds.

"Just the fact that this was an issue at all is a big concern for every state," Pattison said. "Long-term bonds may be at risk. And I think states are going to have to accept that cost of debt is going to be higher."

In most states, budget directors and legislators have said that tax increases are not likely. A notable exception is California, where Schwarzenegger is seeking a 1.5-point increase in the state's sales tax, although he is unlikely to get the necessary approval of Republican legislators.

In Oregon, moreover, Governor Ted Kulongoski, a Democrat, has proposed a $1 billion economic stimulus plan centered on infrastructure improvements, which he envisions would be paid for by raising the state's gasoline tax by 2 cents per gallon and increasing a host of vehicle fees.

When many regular legislative sessions resume in January, some states will be more likely to look to rainy-day funds, when they are available, and deeper cuts to services, most notably to K-12 education - kindergarten through 12th grade - which is generally a last-resort option among lawmakers.

Fewer than a dozen states have remained in the black this fiscal year, according to the Center on Budget and Policy Priorities, a liberal-leaning economic research group in Washington that tracks state budgets, and they are largely those in the West with oil and mineral resources at the ready.

"The oil-producing states were doing very well with oil at $120 a barrel," said Iris Lav, the deputy director of the center. "They may not do as well now."

More generally, Lav said, state budgets are "moving from the damaged to the devastated."

http://www.iht.com/articles/2008/11/17/ ... states.php

If most of these states would take notice the money they spend on illegal immigrants equals or goes far beyond what their budget shortfalls are.Seal the borders purge the wellfare and food stamps and save our economy at the same time.



STAND TALL PATRIOTS