States Wrestle With Recession, Fiscal Crises

Last spring, after Gov. Mario M. Cuomo and the state Legislature finally approved a spending plan for the current fiscal year, they boasted that they had cut so deeply that something rare in recent state budgets would happen: No midyear revisions would be needed to make up for any unforeseen shortfalls in revenues.

What the governor and the Legislature did not count on, however, was the severity of the nationwide economic recession. With the downturn continuing to cut deeply into projected revenues, New York now needs an estimated $875 million to plug this year’s budget gap and up to $3.6 billion to balance the spending plan for the fiscal year that begins in April.

“The net effect politically has been a steady cycle of bad budget news coming out of Albany,” said Lee Miringoff, director of the Marist Institute for Public Opinion in Poughkeepsie, N.Y. “Stories about expected shortfalls, real shortfalls, delays in budget negotiations are seen as more or less a continuous thing right now.”

Such bad budget news isn’t confined to New York. Across the nation, state governments that had thought they would see some light at the end of the fiscal tunnel now are grappling once again with mounting deficits as the recession rages unabated.

As in New York, the downturn is creating a double whammy: State incomes are being decimated by steep falloffs in tax receipts while at the same time expenditures are rising for such social “safety-net” programs as welfare, unemployment insurance and health care for the poor and needy.

According to various surveys, about three in every five states are plagued by growing budget shortfalls--almost exactly the same number that were experiencing severe deficit problems this spring, just before the beginning of their new fiscal year.

“This isn’t surprising, since the national forecasts all said the recession would be over at midyear,” said Marcia Howard, deputy director of the National Assn. of State Budget Officers. “Revenue projections were put in based on those forecasts, and everybody was expecting improvement. But there hasn’t been any improvement.”

How to deal with the latest round of fiscal woes is creating monumental headaches for governors and state legislators.

In New York, Cuomo and legislative leaders are still at an impasse over how to eliminate that state’s rising red ink, despite months of debate and dire predictions.

Perhaps the biggest casualty of the budgetary standoff so far, however, has been the governor’s hopes of joining this year’s contest for the Democratic presidential nomination.

Cuomo had linked his presidential campaign plans to his success in resolving New York’s fiscal problems, but the deadline for filing for the crucial New Hampshire primary--the nation’s first--arrived last Friday with the governor and the Legislature still at loggerheads.

“It’s my responsibility as governor to deal with this extraordinarily severe problem,” Cuomo said with obvious regret at a news conference to announce his decision not to run. “. . . I cannot turn my attention to New Hampshire while this threat hangs over the heads of the New Yorkers I have sworn to put first.”

The chief source of conflict in New York’s budget battle are the competing plans for reducing welfare and Medicaid costs. Medicaid expenditures for the nearly 3 million poor and elderly who rely on the health care program are running 17% above last year’s levels.

The Republican-controlled state Senate has proposed a deficit-reduction plan that would slash spending for welfare and Medicaid by $1.6 billion over the next year and half, chiefly by cutting services and curtailing eligibility for program recipients.

But Cuomo and the Democratic-dominated state Assembly would prefer reducing Medicaid reimbursement rates to achieve health care savings and adding school aid to their proposed list of social program reductions.

When a compromise might be reached is anybody’s guess. Last year, the governor and the Legislature went a record 65 days past the April 1 start of the new fiscal year before finally reaching agreement on the current budget.

Elsewhere in the Northeast, a controversial state income tax introduced earlier this year by Connecticut Gov. Lowell P. Weicker Jr. has survived a fractious repeal effort in the state Legislature.

The tax was intended to deal with a record $2.6-billion deficit in this year’s spending plan, but less than half a year after it was imposed, along with other tax increases that created the largest tax boost in the state’s history, Connecticut now finds itself facing a $175-million shortfall in its current $7.6-billion state budget.

While the gap represents slightly more than 2% of the total spending, it has a psychological impact well beyond its mere size. Many Connecticut taxpayers felt that, with the imposition of the personal income tax, the state’s financial problems were resolved for well into the future, if not, indeed, forever.

To plug the projected $175-million hole, Weicker has put forth a package of cost-cutting measures, many of which require legislative approval. But, after a special session that started in mid-November and lasted for almost a month, the Legislature adjourned without taking any action on the governor’s proposals and without setting a date for reconvening.

“What that means when they come back for the new budget process is unclear,” said G. Donald Ferree, a University of Connecticut political scientist and polling director for the university’s Institute for Social Inquiry. “They may try to repeal the income tax again. But the governor may continue to say he’ll veto anything that’s not (fiscally) responsible.”

Both the governor’s and the Legislature’s public approval ratings remain in the cellar. Weicker received a favorable rating from only 24% of the respondents to a mid-December survey Ferree conducted, while the Legislature got less than 13%.

Meanwhile, in Florida, state lawmakers had expected unpleasantness and even pain when they called a special session earlier this month to grapple with a projected $513-million shortfall in the state’s $29.4-billion budget.

But before the final vote was taken on Dec. 13, six state Senate committee chairmen were forced to resign by the Senate president, two Republican lawmakers from Miami traded punches on the Senate floor and Gov. Lawton Chiles saw his popularity plunge to a record low.

“At least my dog likes me,” sighed Chiles, a former U.S. senator who is in his first term as Florida’s governor, in response to a survey in which only 23% of the respondents gave him a favorable rating.

Nonetheless, the spending cuts proposed to balance the budget were approved. The consequences, however, are grim. New prisons, built to ease serious overcrowding problems, will remain unopened. Teachers are facing widespread layoffs, and more students will be crammed into classrooms because of the teacher shortage. A 3% pay increase for state workers is being delayed until February.

But Florida is not out of the fiscal woods. Senate President Gwen Margolis says next year’s budget shortfall could top $1 billion, forcing the state to cut spending even more and to seek new sources of revenues.

Chiles has, in fact, warned Floridians to expect higher taxes. Florida is one of nine states with no broad-based personal income tax, and the recession has cut deeply into the state’s chief source of revenue, a 6% sales tax. Chiles insists there is no time to waste, saying: “The clock is ticking on Florida.”

In the Midwest, Michigan has been among the states most deeply ravished by the recession and also among the states taking the most dramatic steps to keep their budgets in balance.

Since January, 2,300 state employees have been laid off, and another 1,000 state jobs have been eliminated through attrition. An early retirement program now in place is expected to wipe out 1,200 more jobs.

In August, 34,500 state employees--approximately half of the total 62,700 state work force--took four working days off without pay, for an estimated savings of $13 million in the current $8-billion state budget. What is more, a 9.2% across-the-board spending cut was implemented in every state department except education.

But perhaps the deepest and most painful deficit-reduction measure was the elimination of the state’s $247-million General Assistance program for those who do not qualify for federally financed welfare aid. A compromise budget allowed for continued welfare services to about 7,000 families on the General Assistance rolls, but the remaining 83,000 single adults stopped getting their checks as of Oct. 1.

Massive evictions of the former welfare recipients from welfare hotels and cheap apartment buildings followed; many others lost their homes. In Detroit and Lansing, the state capital, tent cities sprang up to house the outcasts.

“I’m trying to find a job so I can get a (new) place,” said Eric Carter, 30, as he sat huddled in blankets next to a kerosene heater under a large green-and-yellow plastic tent in one of Detroit’s most poverty-stricken neighborhoods. “When the government cut off GA, that was my only means of survival.

Gov. John Engler, a Republican, has been encouraged by a still relatively high standing in public opinion polls. A survey in late October, for example, found that the percentage of people who approved of the way he does his job had slipped to only 44% from 49% in June.

Carter, who had been getting a $102 General Assistance check every two weeks, now gets by largely on the monthly $111 in food stamps he still gets from the federal government, but he said that it is “kind of hard when you don’t have a place and you can’t buy a lot of groceries.”

Despite all the spending cuts, Michigan projects a deficit ranging from $50 million to $100 million for the remainder of the current fiscal year. That money will have to come out of next year’s spending program.

“The only hope, not only for Michigan but for other states, is that the job prospects turn up,” said David Littman, a regional economist at Manufacturers National Bank in Detroit.

But he added: “There’s no prospect of that if the tax burdens continue to escalate.”

Michigan’s strategy of heavy reliance on spending cuts is being fiercely debated in states throughout the nation. But no uniform trend has as yet emerged.

In Texas, for example, Gov. Ann Richards signed a $59.5-billion budget for the 1992-93 fiscal year that included $2.7 billion in tax increases. However, it did not include a state income tax that was proposed by a blue-ribbon tax review committee headed by former Gov. John B. Connally.

Instead, legislators relied on a higher sales tax and increases in a grab bag of miscellaneous taxes and fees to make up the budget shortfall, which was caused in part by court-mandated changes in school financing and prison construction.

Despite the tax boosts, the budget remained politically palatable, particularly because no cuts in state government services were involved.

Still, many political and fiscal experts believe a state income tax is inevitable. “The Legislature and governor have exploited every revenue source reasonably possible,” said Tom Keel, the former executive director of the Legislative Budget Board who lectures at the Lyndon Baines Johnson School of Public Affairs at the University of Texas.

At the very least, says Robert Norwood, research director at the Austin-based Texas Research League, a nonprofit organization that studies state government, Texans have reached a point where talk about an income tax is politically acceptable.

“We have the lieutenant governor of Texas and other public officials who feel strongly that an income tax is appropriate and have stepped out and said so,” he said. “A decade ago, that would have been a death knell.”

Researchers Amy Harmon in Detroit, Lianne Hart in Houston and Audrey Britton in New York and special correspondent Mike Clary in Miami contributed to this story.