As the new fiscal year begins, the situation facing states is dire. This was glaringly illustrated when California was forced to issue IOUs for the first time since the Great Depression while it finds a way to close a $26 billion budget gap.

This year states have faced $166 billion in cumulative deficits. With the economic crisis deepening, red ink stretches for as far as the eye can see. Aggregate gaps through 2011 are likely to eclipse $350 billion.

As bad as the cumulative gap is, it would have been far worse without aid provided for states by the American Recovery and Reinvestment Act. However, Republicans and conservative Democrats stripped over $40 billion in state aid as a condition for passage.

In most states the answer is deep spending cuts and regressive tax and fee increases.

The cuts are grotesque in their contempt for the victims of the crisis: working families, the poor and the most vulnerable, including children and the disabled. There are calls for state workers to bear the brunt with unpaid furlough days and cuts to the state pension funds, layoffs, wage freezes and benefit cuts.

Labor, community groups and social service agencies — by the tens of thousands — have descended on state capitals to prevent vital service cuts and layoffs. They are waging battle against the right wing, Republicans, conservative Democrats and corporate interests.

This has resulted in legislative gridlock.

State legislatures are too often caught in a vise of constitutionally-mandated balanced budgets and antiquated regressive tax structures, like that imposed by California’s Proposition 13.

However, there are other alternatives that preserve the responsibility of government and make funding it more equitable.

They include:

• Joining the growing demand for passage of a second federal stimulus package including financial assistance to state governments and massive jobs creation to put people back to work and stimulate new revenues.

• Responding to the growing demands to tax the rich and corporations by reforming state tax codes to close loopholes to the wealthy and create progressive tax structures.

• Supporting efforts to demilitarize the economy to free up hundreds of billions of dollars in wasteful military spending that could be redirected to human need.