Stateline Story

New Governors Inherit Cash-Starved States

Judging by last Tuesday's election results, Massachusetts voters appear to have little taste for taxes.

They elected a governor, Republican Mitt Romney, who vowed during the campaign to oppose any and all attempts to raise taxes to close the state's massive budget deficit.

And they came very close to wiping out the state's personal income tax altogether, with a measure to do just that garnering 45 percent of the vote, a surprise even to its supporters.

All this in a state affectionately dubbed "Taxachusetts."

But the one reality neither Romney nor voters can avoid is this a budget shortfall estimated between $1 billion and $2 billion. Already, just one week after his election and still two months away from actually assuming office, Romney has begun the hard task of deciding how to satisfy the state's cash-starved budget.

Odds are his solution won't include tax increases.

"The response [to the tax question], with so many people saying they wanted to see an elimination of the income tax was, if you will, underlining the fact that people do not want to see taxes go up in Massachusetts, and they'd like to see them come down," Romney said a day after the election.

This antipathy toward taxes will force Romney and other state lawmakers to consider deep program cuts and perhaps other revenue generators, such as expanded legalized gambling, to bring the budget back into balance.

Similar scenes are playing out in states across the country, as the nation's 24 new governors, many elected on pledges of "no new taxes," come to grips with ugly state budget realities.

The vast majority of these newcomers inherit state governments struggling to find enough money to fund the basic functions of government, from building roads to paying teachers to keeping prisoners behind bars. And they face the possibility of first years in office marked by cut after cut to state programs and services.

Complicating matters is the public's attitude toward tax increases, which, after last Tuesday's balloting, many analysts consider to be decidedly negative. In addition to the near-death of the Massachusetts income tax, voters rejected proposed sales tax increases to pay for more roads in Washington and in parts of Virginia.

The distaste for taxes was not universal Arkansans chose not to abolish the sales tax on food and medicine amid warnings from Republican Gov. Mike Huckabee that such a move would devastate the state. Nonetheless, many analysts and lawmakers, both Republicans and Democrats, read the election results as a mandate against new taxes.

"I thought we'd see a lot more movement toward tax increases once this election was over and legislatures convened in January," said Scott Pattison, executive director of the National Association of State Budget Officers. "But now I don't know. A lot of the results may be interpreted by elected officials as meaning the electorate is uncomfortable at least with general tax increases. I've always said [a tax increase] was a last resort move. But I think now it's a real, real last resort."

The defeat of Virginia's sales tax referenda stung Gov. Mark Warner, a Democrat in his first year in office who had campaigned on behalf of the tax increases. With the state facing a budget deficit of at least $700 million, Warner was looking to the vote for cues as to whether the public wanted the deficit closed with spending cuts or new taxes.

"Where we're starting on all of the budget process is the question of where we can find additional savings," Warner said after the sales tax referenda failed.

For more than a year, nearly every state has seen tax revenues muddle along or even decline as the recession wreaked havoc with the nation's economy. The economic and fiscal slump started in the states of the Upper Midwest, moved to the Southern states, and is now hitting hardest the states of the Northeast and West.

To date, many state governments have scraped by with one-time or partial budget fixes, tapping reserve funds and tobacco settlement dollars and deferring some spending for a year, or raising targeted taxes on products like cigarettes. With a handful of exceptions, they have avoided deep program cuts and major tax increases.

But now, with many of these accounts exhausted and programs cut to the bone, states are facing painful choices, leaving new governors the unenviable task of lobbying for program cuts or tax increases or even both at the same time.

"A lot of things were deferred. In a lot of states it was almost explicitly because there was an election coming up," said Nick Jenny, fiscal analyst at the Rockefeller Institute of Government in Albany, NY. "Now that that's passed, we'll probably start to see more of a confrontation of the issues that are out there."

As a result, Jenny believes many states will "start looking at serious spending cuts or possibly tax increases to close the gaps."

In Massachusetts, the election has meant an adjusting of agendas. The Boston Globe reports that Democratic legislators had planned to convene a lame-duck session during which they would consider tax increases and expanding legalized gambling to raise revenue for state programs.

But after Romney's election and the success of the anti-income tax initiative, Democratic legislative leaders have put their plans on hold.