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Economy Has Some States Facing ‘Dire’ Financial Problems

Rell’s budget cuts small by comparison to potential consequences in other states

By Dennis Cauchon

USA Today

06/30/08

HBJ File Photo

Gov. M. Jodi Rell faces a projected $150 million state budget shortfall in the fiscal year that begins July 1.

Although Gov. M. Jodi Rell last week ordered budget cuts of 3 to 5 percent at state agencies and commissions to offset an anticipated shortfall of about $150 million in the fiscal year that begins July 1, other states, by comparison, are in a far more dire financial situation.

The nation’s weak economy has landed some big states in a desperate struggle to balance their budgets before July 1 when their new fiscal years begin.

Arizona, California, New Jersey, Nevada and Pennsylvania are among states that must slash spending or raise taxes to straighten out their finances.

“The philosophical differences are so great and the financial problems so dire that it’s impossible to have any idea what’s going to happen,” said Launce Rake of the liberal Progressive Leadership Alliance of Nevada.

Looking For Answers

Nevada Gov. Jim Gibbons, a Republican, plans to call a special session of the Legislature next week to find a last-minute solution to a budget shortfall approaching $1 billion.

Nationally, state and local government revenue rose 3.5 percent in the first quarter compared with a year earlier, outpacing private sector growth. The average is deceptive.

Revenue is booming in about a dozen states because of high energy and agricultural prices, said Scott Pattison, executive director of the National Association of State Budget Officers, which issued a report on state finances last week.

Texas, New Mexico, Montana and Wyoming are among the thriving states. Revenue is up 14 percent in West Virginia, a coal state, Pattison said.

The budget picture is grim in states that had soaring housing prices that collapsed. “This is going to be a three- or four-year struggle for those states,” said National Governors Association executive director Ray Scheppach.

Arizona’s $2 Billion Gap

States wrestling with severe problems:

• Arizona. The state has never missed its budget deadline but is preparing for a government shutdown July 1 that could temporarily idle 30,000 state employees.

Democratic Gov. Janet Napolitano and leaders of the Republican-controlled Legislature have been deadlocked over how to close a $2 billion gap between projected revenue and planned spending. The governor wants to borrow most of the shortfall, allowing schools to be built with debt rather than on a pay-as-you-go basis.

“They’re playing chicken right now. But there’s a genuine effort to avoid draconian cuts,” said David Berman, a senior fellow at Arizona State University’s Morrison Institute for Public Policy.

• California. The state is outspending revenue by $1 billion a month yet is nowhere near settling on a budget due in 10 days. Republican Gov. Arnold Schwarzenegger and the Democratic Legislature are far apart on what to do.

The governor’s proposals include raising money by selling future profits for the state’s lottery.

• New Jersey. The Legislature will decide, probably next week, whether to offer early retirement to 2,000 state workers. The state would then cut benefits for new hires. Also on the agenda: borrowing $3.5 billion to build schools.

• Rhode Island. The state is trimming $422 million, including $4.2 million to help the poor pay rising utility bills.

• Nevada. Several tax hikes have been proposed — room taxes, payroll taxes, mining taxes — but the governor has opposed them all.

The National Association of State Budget Officers said governors have asked for only a 1 percent increase in general spending next year.

“It’s not as bad as the downturn that followed 9/11, at least not yet,” Pattison said. State budget problems generally lag economic slowdowns so the next two years could be difficult, he said.