States Making Deep Budget Cuts, New Report Shows

A long hoped-for recovery in state fiscal prospects is nowhere in sight, and lawmakers are making deep cuts in education and healthcare for the poor, a report released Thursday (4/24) by the National Conference of State Legislatures (NCSL) says.

Here is a sampling of proposed and enacted cuts reported by NCSL for fiscal year 2004, which begins July 1 for all but four states: 

• Twenty-one states have targeted K-12 education spending for cuts. 
• Twenty-six states plan to cut higher education spending. 
• Twenty-seven states have targeted Medicaid, a joint state-federal program that provides healthcare to more than 40 million low-income Americans. In Massachusetts, 50,000 long-term unemployed lost Medicaid coverage April 1 due to budget cuts.

Other areas getting hit include prisons, state employee benefits and wages, and environmental programs.

“Nearly every program that state governments are responsible for is affected by budget-cutting actions,” Oklahoma Sen. Angela Monson (D) said in a conference call with reporters.

Monson, who serves as NCSL president, said Oklahoma’s cuts include removing 20,000 people from the Medicaid rolls and watering-down a 20-year-old law that limits the number of children in each classroom.

The nationwide list of cuts may grow, because many states have yet to fully address the depth of their fiscal year 2004 deficits. Only 10 states have adjourned for the year; most of the other 40 are still wrangling over fiscal year 2004 budgets.

But even state legislatures that have adjourned may have more work to do. For the first time ever Arkansas lawmakers went home without passing a budget. Gov. Mike Huckabee (R) said Wednesday (4/24) he will likely call lawmakers back to the capitol for a special session beginning May 5.

As bad as state fiscal prospects are now, they may get worse. Some analysts say there is a strong possibility state budget deficit estimates will grow once April income tax returns are counted, meaning many states may have to revisit their current year budgets and make additional cuts in next year’s budgets.

“There is a growing concern that despite all the actions [lawmakers] have taken over the past twenty-four months budget gaps continue to plague states across the country. A specific concern is what April personal income tax collections will reveal,” said Arturo Perez, a fiscal analyst at NCSL, which is a nonpartisan association of state lawmakers based in Denver, Colo.

NCSL’s report shows that the states collectively face deficits in the $80 billion range for fiscal year 2004. Lawmakers have covered nearly $30 billion so far through a combination of tax and fee increases, borrowing, and program cuts. They have more than $50 billion to go, the report says

The projected deficits for fiscal year 2004 are nearly identical to the budget gaps that states have been forced to deal with this year.

“We should call this Under Siege 2,'” said Perez, referring to a Hollywood action movie.

The bleak fiscal outlook is starting to force state lawmakers to take unpopular steps. Many have so far avoided deep program cuts by relying on one-time fixes, such as tapping reserve funds, borrowing and fancy accounting.

“The situation now is that states are in a far more limited position to address their gaps, meaning that the choices presented to policy-makers and lawmakers are perhaps of the more painful variety. Painful meaning anything from additional budget cuts to perhaps tax increases,” said Perez.

The magnitude of the program cuts detailed in NCSL’s report is not matched by the tax increases it mentions. Analysts say this is an indication that state lawmakers are for the most part choosing to reduce state services instead of raising new revenues to pay for them.

States that are raising taxes are focusing on the most targeted of taxes, such as tobacco and alcohol taxes, and avoiding sales and income taxes, which cover many more people. So far this year, six states have boosted cigarette taxes and two have raised beer taxes, according to NCSL. Six states are considering raising personal income taxes. A similar number are looking at increasing business taxes.

Perez says lawmakers’ skittish approach to tax increases resembles what he saw last year, but that this could change as lawmakers near deadlines for passing fiscal year 2004 budgets.

“Last year, we didn’t hear [about tax increases] except for the sales tax [increases] in Indiana, Tennessee, Nebraska and Kansas. And the personal income tax [increases] in Nebraska, Kansas and Massachusetts. There hasn’t been a shift in thinking. But then again, we still have two-and-a-half months left to go and many of the most difficult decisions are often addressed at the end of sessions,” Perez said.