States wonder where all the money went

North Carolina public employees won't be spending much time surfing the Internet or chatting on cellphones these days.

As the state scrambles to trim spending in the face of plummeting revenues, it's gone so far as to forbid nonessential time on those communication devices and to ask state troopers to lessen their highway time, in an effort to save gasoline money.

Taxpayers across the US probably won't get many rebate checks or a tax cut this year, as states suddenly find their financial fortunes reversed. But it's the no-nonsense folks who register your car, audit sleazy businesses, and track hurricanes who are the first to feel the shiver of a budgetary chill running down the spine of the country from the Great Lakes to the Florida Keys.

Nineteen states are currently reeling as tax revenues decline with the US economy, and they're all finding creative ways to trim excess costs. North Carolina, by all accounts, is the worst-off, with spending outstripping revenues by nearly $1 billion.

The situation, for now, doesn't seem to be getting better. Arizona recently began reporting troubles, a sign that revenue shortfalls are spreading from the manufacturing centers of the Midwest and South into the "New Economies" of the West.

"There's been a steady stream of states saying, 'Oops, we don't have as much revenue as we thought,' and it's getting more widespread," says Nick Jenny, an analyst with the Rockefeller Institute in Albany, N.Y.

Critics say states' shortfalls stem from a combination of overspending and tax cuts. They say lawmakers grew giddy amid record revenues, expanding programs that couldn't be sustained.

"To act like we weren't going to have a downturn was silly," says Don Carrington, director of the conservative John Locke Foundation in Raleigh, N.C. "We predicted over a year ago that we had a serious problem in the state.... But still there was no end to the good work that state government could dream up."

But now, many programs are getting cut. While Louisiana tries to scale back a free college-enrollment program that cost 10 times more than expected, Missouri lawmakers are eyeing a foster-home subsidy that has grown to 16 times its estimated size. In South Carolina, the legislature is trying to both cut taxes and slash the budget.

State workers aren't happy

Of particular concern to North Carolina workers is the sudden stemming of state funds into public employees' retirement and healthcare accounts. So far, the cutbacks won't have a huge effect on the retirement fund. But if the practice continues for more than a few months, it could mean a loss of billions of dollars in interest to the fund.

To be sure, many of North Carolina's budget problems are unique, including an expensive lawsuit that cost the state $80 million this year and a freak snow storm that paralyzed central Carolina in February 2000, throwing off sales taxes.

Yet, as is becoming apparent from Jefferson City, Mo., to Baton Rouge, La., struggling states also have a lot in common: a broad dip in sales-tax revenues and huge, unexpected Medicaid overruns that no one can explain.

Critics blame both political parties for failing to keep their tax-and-spend policies in check. "Republican tax cuts have hurt, but the Democrats' unchecked spending has also gone out of control," says Dana Cope, executive director of the State Employees Association in Raleigh.

In many ways, the government may be acting wisely by scrimping on supplies and gasoline for a while, as lawmakers try to pinpoint fresh revenue sources - including a proposed state lottery.

It's not all the states' fault

Some experts say the budget problems weren't entirely inevitable. "A lot of the spending increases [in the past seven years] were due to pent-up demands and needs that had to be addressed," says Corina Eckl of the National Conference of State Legislatures in Denver. "A lot of states put them toward one-time projects like school buildings and computers. A lot of states paid off money they had borrowed in the past. However, I'm not going to say that there weren't some states that built themselves a budget hole."

In the end, the state budget crises may peter out. Many economists say it's likely revenues will pick up later in the year, easing the crunch. Some 20 states, most in the Northeast and West, are actually reporting revenues that exceed expectations.

Yet some remain troubled. North Carolina, for example, has led the nation in manufacturing job losses - about 61,000 low-end jobs, a 7.1 percent decline, since 1995. Though gains in other industries have helped, denim plants and tool shops continue to close throughout the rural reaches of the Tar Heel State, and corporate job growth has dried up in the cities.

How long will it last?

"Once you start into a recession or economic slowdown, you don't know how long it's going to last or how deep it's going to be," says David Crotts, North Carolina's chief financial analyst. "When things start going bad, they tend to snowball."

Meanwhile, government grunts are fed up. Observers say morale is getting worse as budget restraints impair people's ability to do their jobs. In North Carolina, about 14,000 state jobs are unfilled - a situation that adds to the work load of current employees, some observers say.

"We're sacrificing basic vital services that taxpayers want and demand," says Mr. Carrington. "Is it really in the interests of public safety, for example, to idle patrol cars?"

(c) Copyright 2001. The Christian Science Monitor