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TIME: Almanac 1993
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1992-08-28
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NATION, Page 15The State of the States: Broke
With expenditures growing and revenues shrinking, Governors and
legislatures are scrambling to balance their budgets
By RICHARD LACAYO -- Reported by Priscilla Painton/New York and
James Willwerth/Los Angeles
Here's an axiom of the new budget math for state officials:
'80s into '90s won't go. For much of the past decade state
budgets were pushed into the black by a buoyant economy that
kept tax revenues pouring in just fast enough. In a pinch,
states could unveil a new lottery, nudge up the sales tax or
practice the kind of creative accounting that shifts one year's
outlays into the next. But with the economy slumping and voters
raising a fuss at the very whisper of new taxes, the assumptions
of the '80s are not working anymore. Now 29 states are facing
budget deficits. That may be business as usual in Washington,
but most states are obliged by their laws to maintain a balanced
budget.
The nationwide economic slowdown has deeply cut into
revenues from state corporate and income taxes while also
leading to cautious consumer spending that reduces the take from
sales taxes. Meanwhile, outlays have been rising sharply for
bridge and highway maintenance, prison construction and new
schoolrooms for the second wave of the baby boom. The stiffest
increases have been in health-care costs. Medicaid spending by
states rose 18.4% in fiscal 1990 alone. Thus many of them are
struggling with the prospect of big budget cuts and higher
taxes, or drawing on reserves. "It's going to be batten down
the hatches," says Ray Scheppach, executive director of the
National Governors' Association. "The big question is how deep
this recession is going to be."
Among those states facing the most serious problems:
CALIFORNIA is suffering the full impact of the taxpayers'
revolt of the 1980s. Proposition 13, the 1978 referendum that
froze property taxes at 1% of assessed value, depleted county
treasuries, leaving the state to pick up the bills for things
like schools and welfare services. Now California faces a $1.5
billion budget gap that is expected to swell to $6.5 billion by
1994. Incoming Governor Pete Wilson is refusing to rule out the
possibility of higher taxes. But he also wants more freedom from
constraints imposed by the state constitution and voter
initiatives and laws that earmark much of the budget in advance
for such purposes as education.
CONNECTICUT has an 8% sales tax, one of the nation's
highest, which once compensated handsomely for the fact that the
state had no income tax. With consumers on a buying binge, the
state could afford to let spending rise 59% between 1984 and
'88. Then recession hit, the shopping spree ended and sales-tax
revenue was reduced to a trickle. For this fiscal year,
Connecticut is looking at a $500 million shortfall, which is
expected to triple in the next. That would amount to 20% of the
state's projected $7.9 billion budget for fiscal 1991,
proportionately the highest deficit acknowledged so far by any
state. Governor-elect Lowell Weicker, who has asked all state
agencies to propose budget cuts of up to 20%, is thinking of the
unthinkable: an income tax.
NEW YORK was so flush in 1987 that it decided to cut state
income taxes over four years. But when the economy began to
shrink, Democratic Governor Mario Cuomo did not react fast
enough. Facing a $1 billion deficit, the state legislature met
in special session two weeks ago to adopt a package of cuts that
nibbled at school spending and hospitals. When Cuomo took off
for Washington three days later to deliver a speech that warned
about federal budget deficits, he may have hoped his troubles
were over for a while. No such luck. On the same day Republican
state comptroller Ned Regan announced that because revenue
projections had been too optimistic, the state was still facing
a budget shortfall of $500 million.
Officials from many states complain that Washington is
making their problems worse. Two weeks ago, lawmakers who
assembled in the capital for the National Conference of State
Legislatures claimed that the recent budget compromise between
the White House and Congress would cost the states an additional
$17 billion over five years. Reason: federal mandates in the
deficit-reduction deal direct states to spend money for such
things as clean air and improved nursing-home care. The group
also predicted that the increase in federal taxes on gasoline
and alcohol would make it harder for states to increase their
own levies on those products.
"In the long term, there has to be some rethinking of fiscal
federalism," says Tony Hutchison, a senior policy specialist
with the group. "We need to strike a balance to determine which
revenues will fund which services at which level of government."
In the short term, state lawmakers -- and state citizens -- will
have plenty of opportunity to learn another dismal equation of
the new budget math: lower revenues plus higher spending
obligations equals big headaches.