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State budget gaps spreading, reports say

Like pollutants spreading through a food chain, the consequences of the country’s economic crisis are multiplying in state budgets around the nation. Bush administration policies have made the crisis worse.

Three recent studies highlight the problem.

Earlier this month, the Washington-based Center on Budget and Policy Priorities said at least 29 states and the District of Columbia face a total budget gap of at least $48 billion in their fiscal year 2009 budgets, and many are passing those shortfalls along to their most vulnerable residents by cutting human services.

CBPP said at least 13 states have already made, or are thinking about, cuts affecting health care for low income children and families. At least 11 have cut or may cut K-12 education, while at least 15 have cut or may cut state workforces. “Workforce reductions often result in reduced access to services residents need,” the Center said. “They also add to states’ woes by contracting the state economy.”

The economic downturn, including the housing crisis, is causing state sales tax revenues to fall as sales of furniture, appliances and building materials sag and consumers buy less generally, CBPP said. It pointed out that as property tax revenues sink, cities and towns will seek more state help to fund local budget and education needs.

Also in June, the National Governors Association said states face increased pressure to fund social programs and health care as the economy weakens and revenue growth declines.

In its “State Budget Update: June 2008,” the National Conference of State Legislatures contrasted this year with fiscal 2007, “when nearly every state reported stable fiscal conditions.” NCSL said the decline “was worse than expected” and the budget gap “more than tripled.”

“In the short term, states are at the mercy of the national economy,” Michael Bird, NCSL federal affairs counsel, said in a telephone interview. Noting that the state economic picture generally lags 18 to 24 months behind the national, Bird said states “haven’t hit bottom yet. We’ve got much further to go.”

The bipartisan NCSL sees several “quick fixes” the current administration, or the next one, could do, Bird said. Among them: temporary increases in federal matching funds for Medicaid, food stamp benefits and low income energy assistance as well as extending unemployment benefits and approving grants for selected infrastructure projects.

Jo Comerford, executive director of the National Priorities Project, emphasized the impact of spending on the Iraq war and the military in general: “In the last almost eight years, we’ve seen a ballooning military and Pentagon budget, with more and more money going to support the military while less and less is available to states.”

A new administration could analyze what’s really needed in military funding, and the cost of an endless war strategy not only in lives but also in economic terms, “and make some immediate decisions to try other ways,” she said.

NPP has amassed data showing how much taxpayers in states and communities have paid toward the Iraq war, and services those funds could have provided. For example, Maryland taxpayers have put $12.7 billion toward the war so far, which could have provided over 68,000 affordable housing units, or a year’s worth of health care for nearly 2.5 million people.

With the Bush administration’s 2001 and 2003 tax cuts for the wealthy, Comerford said, “we’ve put a lot of stock in hoping for trickle-down economics, and yet that leaves people at the very bottom of the economic hierarchy struggling for crumbs, rather than being able to make changes for themselves based on a strengthened social safety net that actually helps break a cycle of poverty.” She called for more funds for state and local social programs “and fewer tax credits for wealthy folks.”

Meanwhile, in California, where the absolute gap is biggest and the per capita gap among the biggest, the budget standoff continues, with Republican Governor Arnold Schwarzenegger advocating a temporarily higher state sales tax and demanding budget “reforms” such as a mandatory spending cap. Minority Republican legislators reject tax increases including the governor’s proposal, while majority Democrats maintain that the $15.2 billion general fund gap must be closed by higher taxes on the very wealthy as well as by cuts. A two-thirds majority is needed to pass a budget or to raise taxes.

Though most states have adopted their budgets, the drama goes on.

In New York State, Governor David Paterson is calling the legislature into special session after revenues dropped in the aftermath of the financial sector’s meltdown. He is urging the legislature to cut $1 billion from the current budget and another $1.6 billion from the 2009-2010 budget.

Georgia’s schools could lose some $150 million in state funding in the current fiscal year, under the governor’s recently announced budget cutting plan. Each of the state’s 180 school systems faces an immediate cut of 2 percent in basic education funding.

Though Indiana’s state auditor says the state is “on solid financial ground,” Gov. Mitch Daniels is asking most state agencies to cut 7 percent from their budgets in the coming year.

mbechtel@pww.org