States Beseiged by Budget Woes

Tim Watson, 42, of Guernsey, Ohio, sympathizes with state budget cutters trying to close a $1 billion gap, but thinks closing down the state mental health facility in Cambridge, Ohio, where he has worked for 24 years, is shortsighted.

"It just doesn't make sense," said Watson, who as a caseworker will have to drive mentally ill patients to another facility two hours away if Gov. Ted Strickland's (D) plan is approved. Watson said the state may save $9 million by shuttering the hospital, but his Appalachian community would lose a vital employer and families would have to travel hundreds of miles to visit hospitalized loved ones.

But at least Watson would keep his job. In California, teachers' unions estimate that nearly 14,000 pink slips already have been sent out and more are in the offing as the state grapples with a $16 billion projected deficit for 2009. Some 3,000 state employees in New Jersey and 1,200 in Rhode Island could find themselves in the unemployment line under proposals to stop the red ink flowing in those states.

Economists and politicians may debate whether the country has technically fallen into a recession, but new figures to be released next week suggest states are at the brink with state tax collections the lowest in nearly five years. "There's an eerie similarity to what we saw right before the last recession," said Robert B. Ward, deputy director of the Nelson Rockefeller Institute of Government, the public policy research arm of the State University of New York. Rockefeller's numbers show state revenue collections dropped 4% overall, after adjusting for inflation, compared with a year ago.

In any event, the current billion-dollar holes in budgets are real, and filling the gaps could mean painful cuts to programs, not just this year, but for several more, experts say.

Beyond the loss of state jobs in this downturn hitting all but a few energy and farm states, some 7,000 mentally ill and elderly in Maine could be dropped from Medicaid, the state-federal health program that serves 59 million needy, while Medicaid recipients in Vermont may face a higher co-pay.

Arizona is considering eliminating child-care subsidies for 3,200 children in low-income families, and college students in Iowa and Pennsylvania will have to find student loans through private banks as the credit crunch led those two states' lending agencies to suspend programs.

Today, 22 states have a collective budget shortfall of at least $37 billion, which is about the same size deficit they had at the start of the 2001 recession, said Iris Lav of the Center on Budget and Policy Priorities. If the current downturn follows the path of previous recessions, 35 to 40 states could face budget cuts in 2009, the National Governors Association recently estimated.

Read the full report Budget Woes Hit Home on's Web site.