30 States Found Facing Budget Deficits in Further Proof of Recession

At least 30 states from coast to coast face budget deficits, providing further proof that the nation is in a recession, a Boston newspaper reported Friday.

The deficits range from $1 billion each in New York and California to $42 million in Tennessee, according to studies by the National Assn. of State Budget Officers and the Boston Globe.

“It’s unusual to have this many states in trouble when we’re really just going into a recession,” Jerry Miller, head of the state budget group, told the Globe. “The last time things were this bad, in 1982-83, we were already in a recession.”

The surveys concluded that the faltering national economy has dampened business output, leading to a falloff in business tax revenue.

“Corporate taxes are the most volatile and have fallen the greatest,” said George Leung, head of state ratings at Moody’s Investors Service.

Recession fears have put the brakes on much retail spending too, he said. “Studies show consumer confidence has dropped to record lows.”

The less consumers spend, the more businesses are likely to lay off workers. State governments also have trimmed their payrolls. In Massachusetts, for example, up to 10,000 part- and full-time state jobs have been eliminated in the past two years.

The surveys found that job losses are adding to state spending, as unemployed workers sign up for state benefits and more families join the welfare rolls.

Layoffs also have depressed states’ third major source of revenue: personal income taxes.

Indications of economic hard times were papered over in some states to shield officeholders running for reelection, according to Hal Hovey, editor of State Budget and Tax News.

Hovey said in Maine, for example, state officials falsely reassured voters that depressed revenues would increase after the election.

Similarly, Michigan budget officials predicted that spending on Medicaid would drop, Hovey said, “when everyone else expects it to go up 10% to 20%.”

The federal government last year began requiring states to pay for expanded coverage for victims of catastrophic illness, nursing home residents and pregnant women.

“Just the new mandates in Medicaid cost more than the total revenue growth in a number of states, including New York, Rhode Island and Massachusetts,” Miller said.

Even officials in states where budgets are balanced are worried.

“This year we’re right on target, but it’s looking like we may have slowed revenue growth so things will be pretty tight next year,” said John Gasparith, New Mexico’s budget director.