California Isn’t Only State in Budget Crunch

As Gov. Gray Davis and California lawmakers look to overcome the worst one-year decline in revenue since World War II, they can take small comfort in one fact: They’re not alone.

From Washington to Florida to New York, numerous states are facing budget squeezes of their own, which they’re tackling with a variety of approaches.

North Carolina, for example, has raised taxes to address dwindling revenue and rising expenses; Arizona and others have convened special sessions of the legislature to tackle similar budget problems.

“California is not at all an anomaly,” said Scott Pattison, executive director of the National Assn. of State Budget Officers.

Pattison’s group pegged net state budget shortfalls as of Nov. 1 at $15 billion for the 2002 fiscal year. It’s a trend, according to Pattison, due largely to softening corporate, sales and personal income tax receipts, compounded by the economic fallout of the Sept. 11 terrorist attacks.

Forty-four states reported revenue coming in below projections during the first few months of the current fiscal year, according to the National Conference of State Legislatures. In California, revenue is running $1.4 billion below projections used to craft the 2001-02 budget, which is $103 billion.

Responses to the economic meltdown vary from state to state, as do causes for the fiscal woes.

Like other state leaders, Arizona Gov. Jane Hull has called for a combination of spending cuts and funding shifts, as well as tapping her state’s rainy day account to help cover an anticipated $1.6-billion shortfall. Raises for state employees, which were pegged at 10% over two years, were scaled back to one-time pay hikes of 3%.

In California, Davis has begun addressing a potential $12.4-billion deficit by ordering a hiring freeze and, more recently, floating a plan to cut $3 billion out of the current budget and the next one. The Legislature is set to consider the governor’s proposal when it convenes in a special session that he plans to order in January.

Davis has stopped short of proposing tax hikes--an option approved by state officials in North Carolina. After the Sept. 11 attacks, that state’s General Assembly approved a $666-million tax-increase package to rebuild depleted reserves in the event of an even worse downturn.

“They’ve given us a fighting chance to work our way through this,” said David McCoy, North Carolina’s state budget officer.

North Carolina revenue for the first four months of this fiscal year was down about $170 million, paving the way for a combination of spending cuts and tax increases.

“We’re staying very antsy, if you will,” added Mike Kiltie, the state’s chief economist. “Like California, we have a lot of uncertainty over what will happen when individual income tax reports come in in April.”

North Carolina’s general fund has not taken the same hit from the declining stock market as California’s has, with personal income tax receipts making up a much smaller portion of that state’s general fund. But North Carolina has experienced a variety of unexpected costs in recent years stemming from natural disasters.

“We were particularly devastated by Hurricanes Floyd, David, Fran and Opal,” McCoy said.

California’s budget problems can be blamed in large part on Wall Street’s woes, and the decline of Silicon Valley technology companies in particular. (For their part, Republican lawmakers contend that a fast-growing government has compounded the state’s financial problem.)

California Legislative Analyst Elizabeth Hill released a report last week that found personal income tax receipts from stock options and capital gains set to plummet to $7 billion in the current budget year, after soaring to $17 billion during the previous one--a sum that made up nearly a quarter of the state’s general fund revenues.

Washington, another state that has ridden the high-tech roller coaster, has had a different experience because, unlike California, it does not have a personal income tax. Instead, its general fund is largely dependent on sales tax receipts.

Consequently, a recent announcement by Boeing Co. that it would slash up to 30,000 jobs has further shaken the region’s economy. “Those folks are buying things every day,” said Marty Brown, budget director for Washington Gov. Gary Locke. “When they’re laid off, they’re not buying anything.”

Washington state is facing a revenue shortfall of as much as $900 million in addition to $300 million in unanticipated expenses. Since Sept. 11, it has frozen $890 million in capital projects ranging from prisons to community colleges, and its largest state agencies have been asked to prepare lists that reflect 15% reductions in spending.

“The governor has said he was not going to consider general tax increases in his budget proposal,” Brown said. “But some lawmakers are talking about a temporary sales tax increase to get through this period.”