States Face Budget Cuts As Economies Slump

For nearly a decade, state legislators had an easy job deciding how to spend because they were riding a wave of unprecedented surpluses. But this year, coming up with a budget could be turbulent because many states must cut expenses. Despite a sagging economy, most states are required by constitution or statute to balance their budget.

To keep their books in the black, legislators are looking at a slew of options, from cutting programs to raising taxes.

In Arkansas, legislators have asked state agencies to find up to 15 percent in possible cuts. With a plan in place to raise teacher salaries, delaying construction, imposing layoffs, and hiking taxes on tobacco products are likely prospects.

“This time, there isn’t much flexibility in terms of getting funding in,” Arkansas House Speaker Shane Broadway told the Arkansas Democrat-Gazette . “The people I talk to know it’s a real tough budget year.”

Making cuts instead of calling for more spending is a new experience this year for many budget writers, says Arturo Prez, senior policy specialist in the National Conference of State Legislature’s Fiscal Affairs Program.

“The national economy surging forward as it has been for nine or 10 years has been pretty [beneficial] for state finances, so to abruptly turn around and see states are in a situation to contemplate budget cuts is a surprising turn of events,” Prez said.

While Prez said NCSL has not researched how many states will have to make budget cuts, he said it is clear a significant number of them will do so.

In Virginia, Gov. James S. Gilmore (R) has fought members of his own party to deliver on his campaign pledge to phase out a controversial car tax. He has ordered $421 million in spending cuts, many at the expense of public universities and local law enforcement agencies. South Carolina state employees have been warned that layoffs or furloughs may be necessary to balance a $5.5 billion budget.

Florida legislators, dealing with the state’s tightest budget in a decade, are considering cuts that could be political dynamite. The Senate is considering eliminating benefits that help the poor and elderly get eyeglasses, hearing aids and dentures.

Colorado politicians are eyeing dipping into a $34 million pool of money reserved to monitor avalanches and the state’s water. The state is facing a budget shortfall for the first time in five years.

Mississippi Gov. Ronnie Musgrove (D) and the state legislature appear headed toward a veto battle over that state’s budget. Musgrove has cut $137 million from the current spending plan, and vows to veto 2002 spending bills if lawmakers base them on what he believes are inflated growth projections. His foes forecast state revenue will grow by 3.7 percent next year, but Musgrove says that estimate is outdated and wants it revised to 1 percent.

“In a fiscal crisis situation, states will make some adjustments to the way they’re dealing with falling revenue,” Perez said.

Forty-eight of the 50 states — Alaska and Vermont are the only exceptions — are required to balance the budget. “The consequences [of not doing so] are mostly political.”says Ron Snell, NCSL’s director of economic and fiscal affairs.

Often, Snell says, states will use creative accounting mechanisms, or “gimmicks,” to pass a “technically balanced budget.” Since budgeted funds are mostly cash deposits, legislators might shift pay periods or re-schedule other flexible expenses from one fiscal year to the next. They then deal with those costs in the next budget cycle.

In a time of falling tax revenue, this approach could become more prevalent, he said.

“You can do some fancy footwork to keep within the letter of the law,” Snell said. “States have not had to deal with revenues coming in at less than projected levels since 1992.”