States’ Budgets ‘Under Siege’

Warning that they see no relief in sight, the nation’s state legislatures said Tuesday that the budget gap facing state governments grew by almost 50% from November to January.

“State budgets are under siege. The faltering economy, declines in the stock market, contractions in the manufacturing and high-tech sectors and soaring health costs have combined to undermine the stability of state budgets,” said a report prepared by the National Conference of State Legislatures.

Facing the mounting gulf between revenue and income, states have delayed capital projects, tapped reserves and cut spending to balance their budgets. Officials in 29 states have imposed across-the-board budget cuts. Stringent measures are expected to continue.

The report said the states’ collective budget shortfall in the current fiscal year had climbed to $25.7 billion through January, up from $17.5 billion just two months earlier.

The gap for the 2004 fiscal year is currently pegged at $68.5 billion, but the analysis warned of even deeper red ink.

“The magnitude of next year’s budget gap is startling,” said Angela Monson, a Democratic state senator from Oklahoma who is serving as the president of the conference. “Thirty-three states estimate budget gaps in excess of 5%, with 18 of those facing gaps above 10%.

“There is great cause for concern since the deficit numbers continue to grow at an alarming rate.”

The conference based its report on data from the first six months of the fiscal year that began July 1.

Officials in 36 states said budget gaps existed midway through the current fiscal year. In an attempt to reduce the shortfalls, Medicaid spending has been cut in 13 states, outlays for education in 21 and layoffs of state employees have taken place in nine states.

Proposals to increase taxes have been made either by the governor or legislators in at least 24 states. Higher taxes on cigarettes are being considered in 14 states, while six states are looking at increasing taxes on sales of alcohol.

Among states facing the biggest shortfalls, Alaska has a current projected budget gap of 30%. However, some analysts say that because the state depends heavily on revenue from oil production, the problem could be eased somewhat if the price of oil remains above $30 a barrel.

Colorado faces a 13.5% budget gap, caused to a large degree by the loss of 60,000 jobs in the last year. Many of those laid off held positions well above entry level. The result was a drop in personal income tax revenue.

On the national level, “we are dealing with multiple years of budget problems,” said Corina Eckl, head of the conference’s fiscal program. “The fact the budget gaps are approaching the sizes they are is astounding.”

She termed “alarming” data in the survey that showed 18 states are looking at gaps that are 10% of their projected budgets for the fiscal year that will begin July 1.

Eckl said these states include California at 30%, Arizona at 25%, New York at 24% and New Jersey at 18.5%.

Monson, the conference’s president, said many state officials are concerned the proposed 2004 U.S. budget does not meet the cost of some mandated federal programs, including special education and election reform.

She said state planners are still waiting for an agreement in the federal budget for the current fiscal year on such issues as welfare reform and homeland security.

“There has not been a recovery in the economy to push revenues in the direction they need to go,” said Arturo Perez, an analyst at the conference of legislatures, a bipartisan service organization aiding lawmakers.