States grapple with budgetary storm clouds

After boom years, attention shifts to keeping budgets trim and safety nets funded in a slowing economy.

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Riverboat casinos in Indiana have been lobbying for years to remain open while docked. But the idea always dies quickly in the legislature.

Until now, that is. With the state facing its first economic downturn in nearly a decade, the latest version of a dockside-gambling bill is racing toward law.

It's a preemptive strike. By allowing riverboats to remain docked and raising the taxes levied on admittance, the state would receive an additional $450 million in yearly revenues - money some lawmakers say will be needed to sustain vital government services if the economy sours.

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After years of boom, states and cities across the land are suddenly studying their balance sheets with renewed attentiveness. Lawmakers have begun setting aside money for job-training programs, cutting nonessential expenditures, and bolstering compliance with labor laws to protect jobs - and those who lose them.

"This is a good time for state and local governments to go down the checklist and make sure that their financial affairs and unemployment programs are in order," says Ron Bird, chief economist at the Employment Policy Foundation in Washington. "It's a time to be prudent about things, but not a time to overreact."

While economic growth is clearly slowing, Mr. Bird says "it's too early to tell if we will have a recession this year." But already, states from Maine to Michigan are starting to feel the slowdown's budgetary pinch.

Forty-five states have "rainy-day" funds to help them weather economic storms, but experts say many of the funds haven't been adequately stocked for even a mild recession.

One thing's for certain. With layoffs mounting and economists turning to microscopes to find signs of growth, cities and states aren't standing idly by. Already, several protection plans are under way:

* In New York, Gov. George Pataki unveiled a state budget proposal that would place $1.4 billion into a "rainy day" reserve fund. An additional $300 million would provide job-creating tax cuts for upstate New York, where the economy has lagged behind the rest of the state.

* In Illinois, a state senator last week sponsored legislation that would help laid-off workers. The bill would fund increased monitoring of compliance with the federal plant-closing law, which requires 60-day notice of factory shutdowns or mass layoffs, as well as unemployment assistance and retraining.

* In Alabama, the governor's finance director announced immediate spending cuts, citing a downturn in tax revenues and economic uncertainty. On the chopping block: out-of-state travel, new hires, maintenance projects, and nonessential equipment.

* In Boston, Mayor Thomas Menino recently announced the release of $1 million for job-training programs aimed at industries that are in particular demand, such as high-tech, healthcare, and tourism.

"We're looking ahead, trying to reinforce our growing industries," Mayor Menino explained in a telephone interview. In the past, with a slow economy and a dearth of job-training options, "everybody just became auto mechanics and beauticians. Well, we're not doing that anymore."

Recently, Boston trained 22 people in culinary arts and then hosted a reception with local hotel managers. Half the trainees were scooped up right away, Menino says. Dozens of local hospitals are also eager to hire.

David Birch, an expert on job creation in the economy, applauds Menino's motive. "The economy is shifting very rapidly from an industrial to a knowledge-based one," says Dr. Birch, president of Cognetics Inc. in Waltham, Mass. "And when a whole bunch of people [from the industrial economy] hit the market in a short time, they are going to need new skills big time."

Knowing which industries to target is the first step - and often the hardest - in such programs, he says. In the past, some training programs have taken steps backward, retraining people for industries that are being computerized or moving offshore.

Boston's idea of targeting booming industries may be a smart one, but Menino is quick to point out that an economic downturn is only speculation at this point.

He is not panicking yet, but explains his cautious approach with a baseball metaphor worthy of Yogi Berra: "When a curve ball breaks, you can't hit it. We want to be ahead of the curve."

Some government officials sound more certain of a worsening economy.

"With virtually every reputable economist forecasting a national economic slowdown in the coming months, this step will allow New York to avoid the mistakes of past administrations," New York Governor Pataki said last month when he unveiled his "rainy day" proposal.

New Yorkers are keenly sensitive to the issue of job loss. A decade ago, during the last recession, the state lost 600,000 jobs - more than any other state. Officials do not want to see that happen again. "Our plan has been to have a strategy in place so that ... New York will be immune to the kind of losses it's had in the past," says Stephen Kagann, the governor's chief economist.

The myth regarding New York's economy is that it rises and falls with the whims of Wall Street, Mr. Kagann says. But in 1995, the state began a measured strategy of lowering taxes. The economy responded to this fiscal policy and has continued to grow - regardless of Wall Street.

(c) Copyright 2001. The Christian Science Publishing Society

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