Stateline Story

More States Complaining Of Economic Pinch

  • January 18, 2001
  • By Stateline Staff

Signs of a slowing U.S. economy are cropping up in more and more states. Among the latest to feel the pinch are Maine, Massachusetts, Indiana, Tennessee, Louisiana, Virginia and Mississippi. In his State of the State speech Wednesday (1/17), Indiana Gov. Frank O'Bannon warned that revenues would be $250 Million below previous estimates for the fiscal year ending in June.

"This shortfall results in a compounded impact of $800 Million through the next biennium," O'Bannon told the legislators. "The national economy is cooling down and so is Indiana's record growth."

Massachusetts Gov. Paul Cellucci struck a similar note in his agenda-setting speech to the legislators, which also occurred Wednesday. "As this era of unprecedented growth ends and we move into the uncertainty of an economic slowdown, I am confident that the state of the state is excellent," Cellucci said. "Fiscal discipline has been the centerpiece of a strategy that has served the people of Massachusetts well, and it will be the cornerstone of our strategy for the future."

With Massachusetts revenues shrinking, the chairman of the state Senate Ways and Means Committee is backing a measure that would boost the cigarette tax 50 cents, raising it to $1.26 per pack and giving Massachusetts the highest state cigarette tax in the nation, the Boston Globe reported Wednesday. The newspaper quoted Senator Mark C. Montigny, aNew Bedford Democrat, as saying that an increase in tobacco excise taxes represents the state's best chance to expand health coverage for residents who lack insurance.

Maine faces a budget shortfall of $250 million over the next two years, according to state officials. And the Portland Press Herald reports that Down East lawmakers are starting to wonder if they cut taxes too much. In the last six years, the newspaper says, the state has cut taxes so deeply revenues have shrunk by more than $450 million a year.

In Lousiana, Gov. Mike Foster wants to use a portion of the state's tobacco settlement money to provide a pay raise for teachers and meet other priorities that would otherwise suffer in a 2001-2002 budget that is already squeezed. But The (Baton Rouge) Advocate reports that leading lawmakers are hostile to the idea.

In neighboring Mississippi, meantime, the Biloxi Sun-Herald reports that thirty-three state school districts could face financial problems in coming months because a sluggish state economy has slowed Mississippi tax collections. The newspaper says Judy Rhodes, director of educational accountability for the Mississippi Department of Education, told the state House Appropriations Committee Wednesday that eight of the districts could face deficits.

Tennessee and Virginia are also doing some belt-tightening in the face of new economic realities. Virginia Gov. Jim Gilmore wants to continue to deliver on his campaign promise to eliminate the state's unpopular car tax regardless. But even his fellow Republicans in the legislature have doubts about the wisdom of continuing the car tax phaseout. In Tennessee, fiscal policy was a problem even during the conomic boom. But The Nashville Tennesseean reports that Tennessee lawmakers received two kinds of state economic forecasts Wednesday (1/17) bad and worse. University ofTennessee economist Bill Fox said a projected $129 million budget shortfall for state government is a best-case scenario, the newspaper said.

"We know most states are seeing their fiscal position deteriorate," Raymond C. Scheppach, executive director of the National Governors' Association (NGA) told a Washington, D.C. news conference last month.

A recent survey of 29 states by NGA and the National Association of State Budget Officers (NASBO) found that:

  • About one-half of states assume general fund revenue growth for fiscal 2002 will be lower than current- year estimates. On average, the decline is approximately 1 percent, although several states anticipate a much steeper decline. Individual income, corporate and sales taxes will contribute to lower revenues. 
  • About one-half of the states estimate that Medicaid spending will exceed current projections. Renewed caseload growth, significant increases in prescription drug costs, long-term care and a general increase in medical costs were cited for the rise. A modest number of states are being forced to reduce current- year appropriations and to make other adjustments to maintain balanced budgets.