State Budget Forecast Calls For Rain

More than three-quarters of the states have made budget cuts or implemented spending freezes, and more than half are tapping their rainy day accounts, reserve funds built up during the economy’s better days.

Even the sacred cow of spending priorities, K-12 education, has come under the budget axe in some states.

These and other cuts are detailed in a new report from the National Conference of State Legislatures.

“It’s probably a fitting day for releasing this report since it’s raining outside, because we really are in a rainy day economy,” Bill Pound, executive director of the National Conference of State Legislatures, told a news conference held on a dreary day in Washington, D.C.

From his perch at NCSL, Pound has a birds-eye view of the states, and what he sees worries him.

The slow economy means fewer dollars flowing into state coffers. Only five states — Louisiana, North Dakota, Texas, West Virginia and Wyoming — are taking in enough money to cover costs. And they are doing so only because of significant mineral, oil or gas industries.

On the expenditure side, health care costs are rising. That, coupled with expansions in Medicaid to cover new population groups, is greatly straining the ability of states to hold down spending.

Dozens of the hurting states are tapping rainy day funds to cover present budget shortfalls. But draining them now will leave fewer dollars to cover future shortfalls.

This would be of little consequence if the economy turns around by mid-summer, as many analysts predict, but for the troubling fact that state revenues tend to lag the economy by as many as 18 months.

“It’s some time after you get a downturn before it hits state government,” said Pound. “That also means it’s a little slower coming out on the other end.”

So even if the economy turns around soon, it will give little comfort to state lawmakers who must decide now whether to raise taxes, cut Medicaid, halt transportation projects, layoff state employees or slash education spending.

And these choices, it should be noted, will be made during an election year in which 36 governors’ races will be contested and thousands of state representatives and senators will square off for control of statehouses across the country.