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- NATION, Page 15The State of the States: Broke
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- With expenditures growing and revenues shrinking, Governors and
- legislatures are scrambling to balance their budgets
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- By RICHARD LACAYO -- Reported by Priscilla Painton/New York and
- James Willwerth/Los Angeles
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- 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.
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- 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."
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- Among those states facing the most serious problems:
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- 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.
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- 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.
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- 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.
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- "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.
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