State Tax-Cut Rush Hits Close to Home With Service Trims

IN Arizona, lawmakers this week approved the largest tax cut in state history. In California, Gov. Pete Wilson (R) promises $7.6-billion in reductions over four years. Georgia Gov. Zell Miller, a Democrat, wants to cut the sales tax on groceries, while New Jersey's Christine Todd Whitman (R) is pushing the last of a 30 percent tax cut.

Even as Republicans in Washington move forward with dramatic tax-cutting -- as much as $189 billion over five years -- 32 states are rushing forward with trims of their own.

''There are more proposals on the boards to cut taxes at the state level than any time in at least 15 years,'' says Steven Moore, a fiscal analyst at the Cato Institute. Behind the moves, say Moore and others, are the strong tide in public opinion to shrink government, remove inefficiencies, and gain an edge in attracting industries and jobs.

But the trend is punctuated with a giant question mark: Despite the conservative mood of the moment, will legislators be able to pull off their tax-cutting proposals -- and at what impact on state and local services?

''The big question for the next few years is how much stomach do citizens have for seeing services cut,'' says Steven Gold, director of the Rockefeller Institute's Center for the Study of the States. ''Surveys show people want to save their money at one end but not have services reduced at the other.''

As in Washington, the debate at the state level pivots on what programs will have to be cut back to help pay for the tax reductions. Some argue that spending cuts are not inevitable, holding that cutting taxes stimulates the economy to where revenues actually rise. Others call such rationale ''voodoo economics'' and ''supply-side nonsense.''

''We have been cutting taxes for four years and our revenues are at unprecedented levels,'' says Doug Cole, press secretary for Arizona Gov. Fife Symington. ''The theory is that you keep the money in the private economy and it multiplies itself in revenue.''

Likewise, designers of California's proposed 15 percent cut in both corporate and personal income taxes envision $28 billion more in revenue coming into the state over four years.

''Protecting California's fragile recovery from its worst recession this century is the entire rationale,'' says H.D. Palmer, assistant director for the state Department of Finance. ''The history of the past four years here shows that lower taxes is the way to do that.'' But others say boom states like Arizona are the exception in seeing a rise in revenues.

In Massachusetts, for instance, there is evidence that a phase-out of an estate tax, begun two years ago, has done nothing to increase money coming into state coffers, as Gov. William Weld (R) had promised.

And even in states where revenues do rise, fiscal analysts say at least some programs will have to be cut -- severely if not altogether. The political fights over what those might be are already beginning.

In New York, for instance, Gov. George Pataki (R) -- who is proposing $1.1 billion in spending cuts to help bridge a budget gap and pay for big tax cuts -- is under fire from various interest groups.

Trustees for the State University of New York, which includes 34 campuses, said this week they would close or merge eight campuses or hospitals if Governor Pataki follows through on his budget plans. Public outcries in Maryland and Virginia have led some key legislators to back off proposals to cut so much from education and welfare.

In California, legislative analyst Elizabeth Hill's review of Wilson's 1995/1966 spending plan shows reductions in social services -- primarily health and welfare -- will ensue for several years. ''The state will face continued program cutbacks and structural budget problems for four years,'' says Hill, adding that the state may face more immediate risks because it assumes federal outlays that are not yet guaranteed to happen.

When state coffers are pinched, counties and cities are often the most visibly hit, warn other analysts. Under heavy pressure, state legislators raid discretionary local funds to salvage programs most visible to their own constituencies.

''A lot of counties thought the end of recession might mean states would make them whole again for funds they withdrew,'' says Ralph Tabor, director of public policy for the Washington D.C.-based National Association of Counties. ''Now they are finding out that's not going to happen for several years because of these tax cuts.''

In Los Angeles County, that is more bad news for lawmakers already reeling from four years of cuts in everything from libraries to lifeguards. This year's deficit of $641 million has already meant the closing of several key health-care facilities.

''The counties really bear the brunt,'' says Fred McFarland, an aide to Yvonne Brathwaite Burke, county supervisor. ''For us it means how do you keep hospitals open? How you keep sheriff's patrolling the street? How do you prosecute criminals? Fill potholes?''

Besides turf wars at the local level for funding, new pressures will mount to raise property taxes and fees, analysts say. California will provide one of the most closely watched tests of how far the state can -- or should -- go in cutting taxes and spending. ''When people look and find they don't have the sheriff's deputies or prosecutors they need, all these spending cuts will come home to roost,'' says Mr. McFarland.

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