Budget Crisis Spurs Scary Soundbites

By: - March 20, 2003 12:00 am

Politicians generally gloss over bad news like hikers trying to tiptoe past a grizzly bear. But with states from Maine to California facing some of their worst fiscal problems in a generation, the nation’s governors have been forced to confront the bear head-on.

Many of them have been using near-apocalyptic rhetoric to brace constituents for painful solutions to the budget crunch, including tax hikes and cuts in spending on popular programs, such as education, healthcare, and even access to highway rest stops.

  • Idaho Gov. Dirk Kempthorne (R) calls the situation “the worst budget crisis among the states since World War II.” “
  • (We face) the Incredible Hulk of budget deficits” said Minnesota Gov. Tim Pawlenty (R).  
  • “If we had to balance this budget on existing revenues, I couldn’t live with myself.” Nevada Gov. Kenny Guinn (R) remarked. He added that the budget mess is as “challenging as any period in (the state’s) 139-year history.” 
  • “To avoid . . . Draconian cuts, we are going to change government in Alabama and we are going to change it so fundamentally that we will never face such a crisis again,” Alabama Gov. Bob Riley (R) said. 
  • At this moment, as a People, we face problems of historic proportions. . . . Never before has Kansas faced the difficult task we face in the coming months,” Kansas Gov. Kathleen Sebelius (D) told her constituents

“If last year’s budget gap felt like a gale force wind, this year’s budget crisis will feel like the “Perfect Storm,” Ohio Gov. Bob Taft (R) declared.

Whether such sound-bites are on the mark or not, the states’ budget problems have broad implications for every American: state programs and policies generally have more impact on the quality of life in the United States than what happens in Washington, DC. Some experts say states could emerge from the crisis with different tax structures and scaled back health, education and welfare programs. Others say the restructuring that will result could be a good thing.

The origins of the crisis are clear. During the Dot.com economic explosion of the 1990s, the states saw unprecedented revenue growth, which triggered an expansion of popular social programs and an outbreak of tax cut fever.

“States as a whole increased spending quite significantly by 28 percent, after adjusting for inflation and population growth. Put differently, state government per person increased by more than a quarter,” writes Don Boyd, fiscal chair of the nonpartisan Rockefeller Institute at the State University of New York, Albany.

During the mid-to-late part of the decade, states also cut taxes sharply, so that when the economy started slowing, they found themselves with commitments they could no longer afford. Unlike the federal government, which does not have to match revenues and expenditures, every state Constitution except Vermont’s requires a balanced budget.

State revenues began slipping in late 2000 and fell precipitously in the third quarter of 2001 a quarter that ended with the 9/11 terrorist attacks. From the beginning of July to the end of September, revenue collection by all the states was five percent lower overall than in the same period the previous year.

Then the situation got worse. In the first quarter of 2002, revenues were down 9.3 percent from the year before. In the second quarter, revenues declined 11.7 percent.

“In a lot of states they’ve actually had negative (revenue) growth and you have to go back decades to see that. On the other hand, the summit from which to fall was high. The boom (of the 90s) was significant,” said Scott Pattison, a former Virginia budget chief who now heads the National Association of State Budget Officers.

The states must collectively eliminate about $26 billion in deficits before June 30, the end of the fiscal year for most, the National Conference of State Legislatures (NCSL) estimates. Next year, they collectively face deficits approaching $90 billion, according to NCSL.

California, home to nearly 35 million people, faces the biggest problem. Between now and June 30, 2004, it projects a deficit of $35 billion one-third of its annual budget or about $1,000 for every man, woman and child in the state. To close the gap, Gov. Gray Davis (D) is seeking $8.3 billion in new taxes and spending cuts that include dropping 200,000 Californians from Medicaid, the federal-state health insurance program for low income families, elderly poor and disabled.

Action on Davis’ proposals has been slow, with lawmakers approving only a quarter of the needed cuts and revenue increases as of mid-March.

Other governors are prescribing similar medicine. Idaho’s Kempthorne, a fiscal conservative who cut taxes 48 times during his first term in office, kicked off the 2003 legislative session with a proposal to raise the state sales tax. “While I have consistently said that raising taxes would be my last resort, we are now at that point,” he said.

In Kentucky, the fiscal crisis led to the early release of 567 non-violent felons from state prisons. One of them, Brian Keith Herron, was accused of robbing three banks in Owensboro, Ky. days after being freed from prison.

“Our present fiscal crisis calls into question our continued ability to execute our existing public policy, because, to be very plain about it, we don’t have enough money,” Kentucky Gov. Paul Patton (D) said in his Jan. 9 State of the Commonwealth speech.

Nevada’s Guinn wants to levy new taxes on everything from cigarettes to strippers to gambling to fund state programs.

New York Gov. George Pataki (R) is taking a different tack. “While other states raise taxes, let us out-compete any state and continue to create new jobs by maintaining New York’s eight-year record as the tax-cutting capital of America,” Pataki said in his Jan. 8 State of the State speech.

New York faces a $9.3 billion deficit in the fiscal year that starts July 1. Instead of raising taxes, Pataki plans to borrow more than $4 billion from state tobacco settlement funds to stave off extreme cuts to services.

The fiscal crisis has led some governors to look anew at state government’s role in higher education. Gov. Bill Owens (R) has floated a plan to eliminate funding for all state universities and give the money directly to students instead a kind of collegiate voucher program. Governing boards for the University of Northern Colorado, the University of Colorado and the state’s community colleges like the plan because it would free them from the budgetary constraints imposed by Colorado’s Taxpayer’s Bill of Rights, which places strict limits on the amount of money state government can raise and spend.

In Massachusetts, Gov. Mitt Romney (R) is talking about dismantling the 59,000-student University of Massachusetts system, spinning off the flagship Amherst campus and the UMass Medical School in Worcester, and merging six campuses in central and western Massachusetts. The three other UMass campuses in Boston, Dartmouth and Lowell would operate in a regional system focused on job training.

University leaders, including UMass president WilliamBulger, a former president of the Massachusetts state Senate, have lambasted the plan. Bulger would lose his job if Romney’s idea is approved.

Stateline.org’s series on the state budget crisis will continue tomorrow with a report on how rank-and-file citizens are being affected by the states’ budget crisis. Part three of our series looks at how the crisis is affecting what arguably is the most important service states provide education. And in parts four and five, we will look at the push for greater efficiency in state government and what that can and cannot do to close budget gaps.

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