Many States Face Gloomy Budget Choices

By Stephanie Simon

Dec. 29, 2002 12 AM PT

Times Staff Writer

ST. LOUIS —

Struggling through their worst financial crisis in half a century, states are freeing prisoners, closing libraries, hiking college tuition, even halting prosecution of abusive spouses as legislators scramble to plug budget gaps that seem to widen by the day.

Ambitious initiatives to subsidize health insurance and child care for minimum-wage workers, to reduce class sizes, to train welfare recipients for jobs, have been put on hold or sharply cut back in state after state, from California to New Jersey, Minnesota to Florida.

And the outlook for the new year is grimmer still.

“I don’t think there’s any way around it. People are definitely going to be hurt,” said Colorado state Sen. Penfield Tate, a Democrat.

As governors prepare to release their budgets next month for the upcoming fiscal year, many find themselves needing to cut the equivalent of an entire year’s spending on prisons, welfare and transportation combined. And that’s after 18 months of frantic cost-cutting to bring the 2001 and 2002 budgets in line.

At least a dozen states face deficits equal to 15% or more of their annual budgets. In a few states, California among them, the deficit could be 25% of the budget.

Most rainy-day reserve funds are bare, or close to it. Several states have even used up future revenue, selling off the payments they are scheduled to receive from tobacco companies over the next two decades for a lump sum of up-front cash.

But such maneuvers go only so far. States are facing a collective deficit of at least $60 billion for the 2003 fiscal year, which begins July 1.

Governors in Arkansas, Connecticut, Nevada, New York and here in Missouri are trying to prepare the public for various tax increases. Already in the last year, Tennessee has raised its sales tax, Massachusetts has reinstated a levy on capital gains and North Carolina has stepped up collection of corporate taxes by closing loopholes. In addition, at least 17 states have raised levies on cigarettes.

All told, changes in tax law for the current fiscal year raised $6.7 billion for the 50 states. This is the first year since 1994 that state taxes collectively showed a net increase, according to Stateline.org, which monitors legislation nationwide.

But newly elected governors in half a dozen hard-hit states are determined to stick with campaign pledges to hold the line on further tax hikes. That leaves them no choice but to cut spending. Yet the most obvious waste and the least popular programs have already been axed.

“There just are no easy choices left,” said Raymond C. Scheppach, executive director of the National Governors Assn.

“These cuts will have quite a bit greater impact than any we’ve seen before,” added Ed Penhale of the Washington state budget office. “It’s health care. It’s education. These are cuts where they hurt the most.”

The cause of the crisis is clear: Two-thirds of the states report declining revenues.

Many budget directors woefully miscalculated their tax receipts this fiscal year on the assumption that the economy would revive. As workers lost jobs, personal income taxes came in 13% lower than forecast. As businesses struggled to stay afloat, corporate taxes came in a staggering 22% under projections, according to the governors association.

Part of the loss stems from the major tax cuts that 43 states enacted in the boom years of the 1990s.

The Center on Budget and Policy Priorities, a liberal think tank, estimates that the cuts are costing states a collective $40 billion a year.

Meanwhile, the cost of health care continues to soar. Spending on Medicaid -- the joint federal and state health insurance program for the poor -- grew more than 13% this fiscal year, the fastest rate of growth in a decade. In response, at least 11 states -- California among them -- have proposed eliminating subsidized health coverage for hundreds of thousands of low-income residents.

The cutoffs vary from state to state, but those scheduled to lose insurance include some senior citizens with incomes as low as $6,560 a year and some parents earning as little as $9,200 a year. In Tennessee alone, advocates expect nearly 270,000 people will lose their subsidized insurance -- most of them “working poor” parents earning perhaps $6 an hour.

“At the office today, I must have taken calls from 30 people who were terminated from the program and didn’t find out until they went to the pharmacy to try to pick up their medications,” said Tony Garr, director of the Tennessee Health Care Campaign, an advocacy group.

“I don’t know how we can live with ourselves, with some of the cuts we’re talking about making,” added Rick Carter, president of Care Providers of Minnesota, a trade association for nursing homes.

“I know that sounds like a lobbyist talking,” Carter said. “And, yeah, I am a lobbyist. But on the other hand, I’ve never seen it quite like this before.”

“It’s the most difficult situation states have faced in a long time,” agreed Bill Pound, director of the National Conference of State Legislatures.

The Virginia state treasury is so pinched that prosecutor Harvey Bryant is appealing to corporations to sponsor some of the legal work he can no longer afford to do, such as prosecute misdemeanor domestic violence cases. Police will still take such assaults to court, but they won’t have any legal help from Bryant’s office, unless a private donor steps forward.

“We could have the Nike Domestic Violence Prosecutor. Though we’d have to change their slogan to ‘Just Don’t Do It,’ I guess,” said Bryant, who serves the city of Virginia Beach, where about 2,200 offenders are charged with domestic abuse misdemeanors each year.

His tone sobered. “We’re going to have to get creative, all of us, in all these states facing budget deficits,” he said.

In Wisconsin, several college campuses have moved to reduce student enrollment next fall by as much as 15% in anticipation of drastic state cuts. In Kansas, about 31,000 senior citizens will be cut from a program offering free meals.

Massachusetts trimmed $2 million from the budget by cutting back on flu vaccines. Alabama may reprise a cost-saving measure from last year: suspending jury trials.

In Michigan, legislators hope to save money by eliminating tough sentencing laws that required certain drug offenders to remain behind bars at least a decade.

In Oregon, prosecutors will stop handling minor crimes, such as shoplifting.

And in Kentucky, Gov. Paul Patton commuted the sentences of 567 low-level felons -- from drug traffickers to burglars to repeat drunk drivers -- springing them from prisons just before Christmas to save the state money.

Here in Missouri, lawmakers plan to end health-care coverage for 36,000 low-income parents. Appropriations for higher education also face deep cuts, forcing the University of Missouri to raise tuition 8.4% and to add a $9-per-credit-hour surcharge. The university system also has eliminated at least 400 faculty and staff positions, canceled some courses and deferred campus maintenance.

“It adds up to death by a thousand cuts,” said Joe Moore, a university spokesman.

Much smaller programs are also being squeezed. Places for People, a nonprofit agency serving the mentally ill, has lost nearly $100,000 in state grants over the last two years.

Director Francie Broderick has stopped sending outreach workers to contact the homeless. And she has to turn away many of the desperate people who knock at her St. Louis office each week, seeking help.

“I try to refer them elsewhere, but the truth is, every place has a waiting list,” Broderick said.

“I tell them to emphasize that they’re a danger to themselves or others, so they can get to the top of the list. Just being alone and miserable is not enough to get you services anymore. Not in this climate.”

(BEGIN TEXT OF INFOBOX)

States in straits

States with 2004 deficits estimated to exceed 20% of their budgets.

Alaska

Estimated deficit in billions: $0.9

Deficit as percent of budget: 37.8%

California

Estimated deficit in billions: $15 to $25

Deficit as percent of budget: 19.5 to 32.5%

Nevada

Estimated deficit in billions: $0.4 to $0.5

Deficit as percent of budget: 21.2 to 28.2%