COLUMN ONE : Cries for Help Go Unheeded : State and local governments are on the edge of a fiscal abyss. Much of the country is becoming meaner and harsher for those most desperate for assistance.

State and city governments throughout the country are under financial siege, and as the crisis deepens, horror stories emerge from abstract budget numbers.

In San Diego County, a severely psychotic, homeless young man shouts at phantom voices as he sits starving in a public park. County mental health workers battle for weeks to admit him to a psychiatric ward. But the county’s lack of funds means that no beds are available. Finally, they give up and load him onto a bus to New York, where his mother lives. They hope that through some miracle he will arrive there and find treatment.

In New York, two men burn to death in a house fire. The blaze is nine blocks from a fire station that was closed down only four days earlier under a city austerity plan. Early reports link their deaths to the delayed arrival of a pumper from a more distant station. At the same time, city transportation officials contemplate closing a crumbling elevated Manhattan highway that carries 90,000 vehicles per day. There is no money to repair it.

In Detroit, a city-funded soup kitchen that feeds up to 300 a day stopped receiving its regular payments from the city. One result: There was no Christmas dinner for the people it serves.

As fiscal disasters spread through state capitols and city halls, they have brought job freezes, massive layoffs of public employees and cuts in services. In much of the country, the cuts will be so deep that middle-class and wealthy citizens will notice them, if they haven’t already. But budget experts say the cuts will have the hardest impact on inner cities and people most desperately in need of public services: inner city schoolchildren, battered children, the indigent, the homeless and the mentally ill.

The size of the crisis is staggering. In state after state, estimates of budget deficits are revised upward almost daily. In California, Gov. Pete Wilson has proposed an austerity budget intended to redress a potential state deficit of up to $10 billion over the next 18 months, which equals about 17% of the state’s expected expenditures. New York state’s deficit was put at $6 billion, or 20% of its budget. Connecticut, one of the few states without a state income tax, tallied up its revenues for the coming fiscal year and found itself fully 30% short.

The mayor of Connecticut’s largest city, Bridgeport, last month took the extraordinary step of threatening publicly to take the city into bankruptcy proceedings. In Philadelphia, the city has been so short of cash that the city treasurer’s office convenes weekly meetings to choose the few bills the city can afford to pay. In New York City, which faces a deficit of $2.2 billion, Mayor David N. Dinkins has proposed layoffs of at least 10,000 city workers and $580 million in tax hikes.

“All the way across the country, the fabric of local government is being shredded,” said Michael Stewart, president of the National Assn. of Counties and a county commissioner in Salt Lake County, Utah.

On Thursday, governors of New York, Massachusetts and Rhode Island, proposed new state budgets that will deeply cut spending on education, health care for the poor and other social services.

As a result, far from becoming kinder and gentler, much of the country is becoming meaner and harsher for people at the bottom of the heap. A recent survey by the U.S. Conference of Mayors shows that the problems of hunger and homelessness have worsened throughout the country. Most cities surveyed reported double-digit increases in requests for shelter and emergency food handouts in the past year, far outstripping many cities’ ability to pay.

In his State of the Union address, President Bush offered little specific hope for strapped state and city governments, even though he said he is aware that “in some regions of our country people are in genuine economic distress.” In any event, state budget officers say, there is little prospect for increased federal aid. The federal government has little to offer at a time when its own deficit is expected to exceed $300 billion for fiscal 1991.

Meanwhile, state and civic leaders say, the onset of a fiscal winter has begun to undermine avowed national priorities, such as the war on drugs and improving the nation’s schools.

On Manhattan’s Upper West Side, Principal Clara Lluberes Ostrowski presides over P.S. 168, the elementary school she attended as a little girl. The school was built in 1897, and its exterior was modeled on the Hotel de Cluny in Paris. But today, the interior belies the Renaissance-style splendor of the facade. The gymnasium is closed. Giant holes perforate its roof, as though the school had been hit by artillery shells. Naked 2-by-4s prop up the ceiling. The floor has rotted. The bathroom for a kindergarten class is closed because of falling bricks and plaster.

Defying the dilapidated surroundings, Ostrowski has transformed the school into a beacon of hope for the poor, inner city children it serves, 100% of whom qualify for free school lunches, and few of whom came to P.S. 168 knowing English. The school has won acclaim for its model bilingual education program, taught mainly by young, enthusiastic teachers recruited by Ostrowski. But now New York’s state and city fiscal crises are gathering to destroy Ostrowski’s dream.

“We should have, because we are so needy, the smallest classes, the best equipped rooms, the finest teachers,” Ostrowski said. But in addition to the decay of the building, the school in the past few months has been forced to eliminate one of its main programs for English as a second language, as well as English classes for parents, a new science program for students who aren’t proficient in English, and a late afternoon play center.

In June, the school may lose its social worker, whose many duties include looking into suspected child abuse. And although layoffs of teachers were narrowly averted this year, the worsening budget picture means that the ax may fall in September.

Like P.S. 168, schools in many places are feeling the cold blades of budget cutters’ knives. Cuts are being made even though improving education has become a political rallying cry, and Bush and the nation’s governors have announced ambitious goals for the nation’s schools by the year 2000. In California, education will be one of the two areas hardest hit under the cutbacks proposed in Gov. Wilson’s budget. It recommends cutting aid to schools and community colleges by $2 billion.

After the prosperity of the 1980s, why are state and local governments on the edge of a fiscal abyss? Ron Snell of the National Conference of State Legislatures says state coffers are affected almost immediately by a recession.

One of states’ two main sources of revenue, sales taxes, plummets as people begin to spend less. And as unemployment goes up, receipts from the other big source of money, income taxes, shrink drastically too. To make matters worse for state and local governments, the impact of a recession is doubled: Just as revenue goes down, costs surge as increasing joblessness raises the demand on services such as Medicaid, welfare and homeless shelter.

State and city leaders, however, say the recession is only the straw that broke the camel’s back. The problem, they say, has been building for years, the result of a dramatic change in federal policy during the Ronald Reagan years.

In the 1980s, when increased defense spending became a leading priority, Washington eliminated federal revenue sharing to local governments. Under the banner of the “New Federalism,” the federal government also shifted onto states and local governments significantly more of the financial burden of Medicaid, transportation, housing and education. A report just released by the U.S. Conference of Mayors shows that the federal contribution to city budgets dropped by 64% from 1980 to 1990.

The Reagan Administration championed the shift as a way of giving states and cities more control over the programs they administer. “It put government closer to the people where the people could make more informed, more self-interested choices about the spending,” said James C. Miller, former director of the Office of Management and Budget under Reagan.

But officials claim the true impact has been simply to hand off part of the federal deficit problem to states and counties. In the 1980s, Stewart says, the message from the federal government was “you locals, you need to have the federal government off your back. But what it really meant was ‘fend for yourself.’ ”

Former Reagan Administration officials such as Miller blame states for not planning ahead more for an economic downturn and setting money aside in reserves. Nevertheless, Miller acknowledges that much of states’ increased spending was mandated by the federal government, and not all of the shift in federal policy was motivated by lofty intentions. “There are instances, such as Medicaid and some other programs, where the federal government has simply off-loaded the additional costs onto local governments,” he said.

States, unlike the federal government, aren’t allowed to print money. Every state except Vermont is prohibited by state laws from running a deficit. So when revenue falls and expenses rise, state and local governments have no choice but to cut services or raise taxes--or, with increasing frequency, both. In the 1990-91 fiscal year, 26 states raised taxes. More will do so in the new fiscal year. But in the current political climate, elected officials who raise taxes know they risk political suicide. In November, 14 governorships shifted from one party to another, and in most of those races, taxes were a main issue.

With such a large portion of state budgets fixed by federally mandated programs, such as Medicaid and Aid to Families with Dependent Children, the areas where states have discretionary power to cut their own budgets is limited. With spending on new prisons, criminal justice and programs for the elderly a high priority, it is often programs such as drug treatment, mental health and child welfare that get cut.

With the onset of recession and drastic belt-tightening by states, many drug treatment programs have been cut and plans for expansion shelved. Public health officials say the cuts not only will hurt the war on drugs but the war on AIDS. Use of intravenous drugs such as heroin is one of the leading ways of spreading the AIDS virus.

In Philadelphia, Caton House, one of the city’s few residential drug treatment centers that accepts pregnant women and women with children, has teetered on the verge of closure for more than six months. Caton House’s staff goes for weeks without paychecks. The workers have lost their health insurance--the city didn’t turn over the money to renew their coverage. Some employees beg to be laid off, so at least they can get a steady income for a while from unemployment checks.

In Massachusetts, funds for outpatient drug treatment programs have been cut by 25%. Now, drug abuse program directors in that state fear that the new governor, William F. Weld, will carry out a threat to eliminate Medicaid coverage for drug treatment as part of the effort to balance the state’s budget. Such coverage generally is available only to women with children. An end to Medicaid coverage for drug treatment “will throw 50% of the clients in the state out of care,” said Warren M. Davis, executive director of a large drug treatment program in southeastern Massachusetts.

The times do not bode well, either, for people with severe, chronic mental illnesses. Because of the incapacitating severity of their disease, most end up needing public assistance and publicly funded treatment. But like welfare, aid for the mentally ill has long been a politically easy target for governors and state legislators seeking to trim their budgets.

“The mentally ill are not a popular group,” said Laurie M. Flynn, executive director of Virginia’s mental health department. “If you have to choose between children and the mentally ill, or senior citizens and the mentally ill, the mentally ill will lose every time.” Nationwide, the severely mentally ill also make up a big part of the homeless population.

In California, former Gov. George Deukmejian last summer cut $71 million in state mental health aid to counties because of pressures on the state budget. This came on top of decades of cuts in state mental health services. As a result, the situation is bad all over the state.

In San Diego County, which has long claimed that it receives an unfairly small share of state mental health money, the situation is stark. In El Cajon, a 16-year-old girl has her first psychotic breakdown. Terrified, incoherent and hearing voices, the girl urgently needs hospitalization. But due to the county’s lack of funds, there are few hospital beds and all of them are full. Repeatedly, she is refused admission. Instead, the county mental health staff gives her prescriptions for powerful psychotropic drugs and an out-patient appointment once a week.

Piedad Garcia, program director for San Diego’s East County mental health clinic, says the shortage of funds means that the county has been forced to give that girl and others treatment that is inadequate and even dangerous. Garcia says that without hospitalization, the effect of the powerful drugs the girl was given couldn’t be safely monitored, leading to the possibility of dangerous side effects.

Areta Crowell, director of the county’s mental health department, said that if people with severe psychotic problems are lucky enough to make it into one of the few available hospital beds, once they are released they often must wait up to three months before they can get into an out-patient treatment program. As a result, she said, many of these patients rapidly relapse.

The nation’s counties and cities are facing not only the impact of the recession but the lingering effect of the property tax rebellions of the past 10 years. Counties in particular find themselves with huge fixed costs mandated by the states but few ways to raise new revenue. Mammoth increases in the cost of the criminal justice system, including court orders requiring counties to ease jail overcrowding, haven’t helped the fiscal picture either.

The fiscal straitjacket created by hostility to new taxes and the property tax revolts have left some glaring paradoxes. For example, some counties that rank near the nation’s top in personal wealth have imposed drastic cuts in services for their poorest citizens.

In Orange County, which in 1989 ranked eighth in the country in per-capita personal income, the Board of Supervisors this fiscal year cut the budget for indigent health care by $11.9 million, or nearly half. Supervisors say they were passing on cuts imposed by the state. Caught between a sputtering local economy and soaring demand for social services, the county government is weathering its worst fiscal crisis in at least two decades, local leaders say.

Because of Proposition 13, the 1978 landmark tax initiative, the Board of Supervisors cannot raise property taxes to solve the county’s budget woes.

Among other cuts in the county, mental health programs lost more than $4 million. The Emancipation Training Center, a shelter in Anaheim that teaches everyday survival skills to troubled youngsters, was closed down last month due to budget cuts. “We’re putting kids out on the street,” said Supervisor Don R. Roth. “Where are they going to end up? They’ll be homeless, sleeping right outside this building.”

Indeed, homelessness is rampant in a county whose economy is dominated by its housing market. Some 10,000 people in Orange County spend every night without a roof over their heads. Yet the county’s homeless assistance program, long under assault, may soon be wiped out. The program gives about 3,500 families per year up to $30 a day for three weeks while they try to find a place to live. Gov. Wilson has proposed eliminating the program, and the county says it will not restore funding if the state walks away. “We just don’t have the money to fill in for the state,” County Administrative Officer Ernie Schneider said.

Across the country, even areas that many officials feel should be sacrosanct are being cut. Child protective services are among them, the caseloads escalating throughout the country.

In Wisconsin, Milwaukee County’s need to cut $7 million from its budget meant a decrease in the number of foster care workers--at a time when the number of referrals increased by an estimated 40% in 1990. Plans to increase the number of caseworkers who investigate child abuse complaints have been scrapped, even though reports of child abuse have jumped by more than 30%.

In just over a year, Bonnie Finkler, a Milwaukee foster care caseworker, has seen her caseload double to 120 at a time, which she describes as “unmanageable.” She says it is now all but impossible to adequately monitor the placement of each child. She complains of public indifference and says “no one cares until there is a tragedy, until a child dies.”

Unless the national economy turns around rapidly, there is little prospect for improved financial health for the nation’s states, cities and counties. Marsha Howard, research director for the National Assn. of State Budget Officers, says that financially, states are far worse off going into the current recession than they were at the beginning of the 1981-82 recession.

“I do believe that the urban agenda has been forgotten,” said Richard V. Robinson, Bridgeport’s financial director, who notes the city’s high unemployment rate, crime problem and flight of middle-class residents to the suburbs. In the ‘80s, he recalled, the Administration in Washington said it was bad to throw money at problems such as inner city decay.

“Now we’re not throwing money at them, and now they’re getting worse,” Robinson said.

Staff writers Jim Newton, Daryl Kelley and Jane Hulse and researchers Edith Stanley in Atlanta, Amy Harmon in Detroit, Tracy Shryer in Chicago, Doug Conner in Seattle and Ann Rovin in Denver contributed to this story.

TAX COLLECTION SHORTFALL

As fiscal disasters spread through state capitols and city halls, they have brought job freezes, massive layoffs of public employees amd cuts in services. In much of the country, the cuts will be so deep that middle-class and wealthy citizens will notice them, if they haven’t already. But budget experts say the budget cuts will have the hardest impact on inner cities and people most deperately in need of public services; inner city school children, battered children, the indigent, the homeless and the mentally ill.

Source: National Conference of State Legislatures