State Budget Gaps Balloon to $97 Billion

Still reeling from high gas prices this summer and plummeting retirement savings this fall, Americans will soon be feeling the pinch in other ways - from increased tuition to potentially higher taxes, as states try to close some $97 billion in budget gaps over the next two years.

States will have to find additional spending cuts of $32 billion for current budgets before even beginning to tackle $65 billion in deficits shaping up for the next fiscal year, the National Conference of State Legislatures reported Dec. 4. States have already closed a $40 billion gap since the start of the fiscal year, which was July 1 for all but four states.

"These budget gaps are approaching those seen in the last recession, which were the worst since World War II, and show every sign of growing larger," William T. Pound, NCSL's executive director said in a statement.

Legislatures will either have to raise taxes or cut programs since, unlike the federal government, states must balance their budgets. The poor, in particular, face the prospect of losing government-sponsored health care coverage or reduced-priced lunches at school.

Arizona is expecting a budget gap in 2010 that will exceed 24 percent of its general fund budget. Other states expecting huge budget holes include: New York (20 percent), California (18 percent), Wisconsin (17.2 percent), Minnesota (14.7) and Kansas (14.5 percent), according to the NCSL report.

"This is bad," said Sujit CanagaRetna, senior fiscal analyst for the Council of State Governments. "2001 is going to look like a walk in the park compared to this," he said, referring to the national recession earlier this decade that forced states to close $264 billion in budget gaps over five years.

The report comes at a time when states are lobbying Congress and President-elect Barack Obama for billions of dollars in federal aid to help states cover rising enrollment in Medicaid, unemployment benefits and the food stamp program.

A review of budget cuts around the country show that many health-care and education programs, which make up more than 60 percent of state spending, are already on the chopping block.

On the education front, Washington state is considering slashing $1 billion in school funding to help plug a projected $5 billion shortfall over the next two years. California Gov. Arnold Schwarzenegger (R) told schools and community colleges that their budgets will be up to $2.5 billion poorer for the rest of this school year as the state tries to close a $28 billion budget gap that will run through June 2010.

California also could run out of money for reduced-priced school meals for the needy while in Hawaii, the Board of Education is working out a plan to charge more for lunch, from $1.25 to possibly more than $2.

College students in Nevada could be facing as much as a 25-percent increase in fees, while tuition at the State University of New York system this spring could go up by $545.

States are already paring back, including cuts in health care. Utah ended some physical therapy, vision and hearing services offered under Medicaid, the national health insurance program that serves 59 million needy, while Nevada has capped enrollment in its state children's health insurance program (SCHIP). And more health care cuts are on the way. Consider this:

  • California may drop 162,000 children from a state health-care program.
  • Tennessee may have to shut out 1,200 mentally ill Tennesseans from the state's health-care program. The state, which doesn't have an income tax, had its worst sales tax growth rate in almost 50 years this month.
  • Rhode Island is expected to remove 1,000 from its Medicaid program, while Nevada has already capped enrollment for its health-care program for children whose families earn too much to qualify for Medicaid.
  • Idaho will suspend a program that sent nurses into homes to help new parents who had money or health problems while next door, nearly 30 social workers who investigated child abuse cases were let go in Spokane, Wash.

But the states' fiscal crisis also could affect people's lives in other, less expected, ways.

  • In Illinois, history buffs who want to see the reconstructed cabin Abraham Lincoln's father built near Charleston may have to wait, because it is among a dozen historic sites facing budget cuts the same year the state celebrates the 200th birthday of Lincoln.
  • In Ohio, the museum named for astronaut Neil Armstrong that houses his spacesuits and capsule he piloted could be closed for one week in the spring because of budget cuts.
  • New York expects to save $150,000 by closing its free ice skating at Empire State Plaza as part of its efforts to close an estimated $1.5 billion deficit for the remainder of the fiscal year.

To save energy costs, the Minnesota Capitol will shut off the lights at 11 p.m., while Connecticut closed state buildings at night and on weekends; Wisconsin is selling 500 state vehicles and will leave some 3,500 jobs vacant. And in Pennsylvania, more than 13,000 nonunion state employees will go without raises in 2009.

NCSL said that at least 10 states have imposed and another 10 states are considering across-the-board budget cuts. Nineteen states have frozen hiring, 14 states have banned travel and four states have salary freezes. Five states have tapped into their rainy-day funds, and six others are looking at that option. States will drain at least $3.7 billion from their rainy-day funds in FY 2009.

Complicating matters is the fluctuating stock market and rising unemployment, which prevents state economists from giving governors and legislative leaders reliable budget projections for the coming year because the numbers keep changing.

"Even states that previously reported strong tax collections are no longer immune from the fallout, especially as oil and commodity prices drop," said Corina Eckl, fiscal program director at NCSL.

This is true even in Texas where Gov. Rick Perry (R) recently dropped his idea of giving back any leftover tax money to residents, fearing that plummeting oil prices and the national recession could erode the state budget surplus.

Governors of both parties are already talking about raising taxes to balance their budgets, a move that for years was considered too risky for fear of voter backlash. In California, Schwarzenegger has proposed a temporary 1.5-cent hike in the state sales tax while Wisconsin Gov. Jim Doyle (D) wants a new tax on hospital revenue and a tax on oil companies to help close the estimated $5.4 billion gap through 2011.

Governors of Idaho, Oregon and South Dakota have all called for hiking their state's gas tax while Nevada Gov. Jim Gibbons (R), who promised not to raise taxes when he was first elected in 2006, has said "nothing is off the table" and that even tax increases might be required to deal with a growing state budget deficit.