"Facing Deficits, States Get Out Sharper Knives"
David Escalante
--
David
Facing Deficits, States Get Out Sharper Knives
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 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 A. 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, a spokesman for 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 above 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 revenues, a health administrator said the state may be unable to pay claims in a few months.
In California, Mr. Schwarzenegger, a Republican, and state legislators are preparing to do battle over a proposed 1.5-cent sales tax increase, while in New York, Mr. Paterson, a Democrat, has proposed $5.2 billion worth of savings, principally cuts 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 fortunes as oil prices have declined.
"Frankly, I thought 2001 was really awful," said Scott D. Pattison, the executive director of the National Association of State Budget Officers, referring to the last big economic downturn. "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."