Economic woes hit state budgets

Soaring inflation and shrinking tax revenues will make it tougher for at least 25 states to fund public services.

from the April 2, 2008 edition

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Meanwhile, some mineral and petroleum-rich states showed revenue increases. These included Alaska, Colorado, and Texas.

Given the unpredictable nature of the course of the national economy and the course of action Washington may pursue in attempting to jump-start it, predicting the status of future state budgets is fraught with uncertainty, notes the Rockefeller Institute report.

"One apparently safe prediction: [It will be] a very difficult year for state budget makers," it concludes.

Of course, those budget makers may be used to trouble by now. Though a booming economy eased some of their problems in recent years, overall, many states have never recovered from the fiscal crisis of the early part of the decade.

The recession of 2001 was a difficult one in many state capitals. State expenditures fell sharply – and for all states combined, today they remain below the level of 2001, when inflation is taken into account, according to a report by the Center on Budget and Policy Priorities (CBPP).

And budget problems can be more severe for states than the federal government. By law many cannot run a deficit as Washington can.

Among the budget cuts that have been made or proposed, according to a roundup compiled by CBPP, are reductions in public health programs. In California, for instance, Gov. Arnold Schwarzenegger has proposed making some families pay more for the State Children's Health Insurance Program.

At least eight states are proposing to cut K-12 education, according to the CBPP roundup. Arizona may eliminate childcare subsidies for some low-income working families.

Meanwhile, eight states – including Florida, Kentucky, and Virginia – either have already reduced or may soon reduce funds for public higher education.

Tax hikes are another means of dealing with red ink. But as the experience of Governor O'Malley shows, they can be very unpopular.

The $1.37 billion in tax increases approved by Maryland's General Assembly last year is already facing a significant alteration: Fierce industry reaction to a surcharge on computer services has led to the consideration of a proposed tax on millionaires to replace the computer levy.

Michigan also passed a broad tax increase in late 2007. Other states considering revenue enhancements include Kentucky, where the governor has proposed raising the tobacco tax.

•Material from the Associated Press was used in this report.

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