Calif. the poster child for states economic woes

As the nation’s economic crisis deepens, more states are struggling with huge and escalating budget gaps. Unless they receive substantial help soon from the federal government, many will be forced to make further cuts in health and human services programs just when these are needed more than ever by growing numbers of laid-off workers and their families.

As usual, California is the poster child for the growing distress. Governor Arnold Schwarzenegger last week called the legislature into a post-election special session to deal with an escalating budget crisis that analysts say could result in as much as a $12.5 billion shortfall in the current fiscal 2009 budget. Calling the deficit “a state of emergency,” Schwarzenegger said he would propose more cuts to health, education and other human services on top of those made when the state budget was finalized in September, a record 85 days late.

But California is far from alone. The Washington-based Center on Budget and Policy Priorities said late last month that 39 states are experiencing or will experience new gaps in current budgets, while 17 states already see gaps growing in their 2010 budgets. “Based on the rate at which states’ revenue bases are deteriorating and the history of prior recessions, the total 2010 state budget gaps will likely be about $100 billion,” the Center said.

Total tax revenues were down 5.5 percent in July through September, the Center reported, with sales taxes hardest hit but income and corporate taxes also sinking. In response, many states are cutting funds for education and for health care programs serving low income people, the elderly and disabled, and many are also cutting their workforces.

An “alternative possibility” to the cuts “is for the federal government to provide direct assistance to state governments” so they could reduce the extent of cuts and revenue increases, the Center said.

In an Oct. 27 letter to leaders of the House and Senate, Governors Edward Rendell (D-Penn.) and James Douglas (R-Vt.) called on Congress to “pass an economic recovery package this session that includes additional funding for Medicaid and investments in our nation’s infrastructure.” They highlighted a two-year temporary increase in the Federal Medical Assistance Percentage, which they called “a particularly effective countercyclical tool” because it enables states “to continue services for those with the greatest need.”

Proposals for federal aid to states form part of stimulus proposals being put forward by the AFL-CIO and other progressive forces. The labor-community Campaign for America’s Future last month called for federal help so states can avoid “catastrophic cuts” to human services. Commenting in September on proposed state cuts in health care for low income families, AFSCME President Gerald McEntee observed, “When the economy goes south, the demand for services goes up. This is a time when families need help the most.”

Last week Schwarzenegger said he will call for up to $4 billion in cuts to education, and unspecified further cuts to health care programs, when the legislature reconvenes on Nov. 5. State officials said he will also propose unspecified ways to increase revenue.

In an Oct. 22 statement Assembly Rules Committee head Ted Lieu (D-Torrance) reiterated his insistence that a special legislative session on the budget must deal at the same time with the mortgage foreclosure crisis. Lieu, a former Banking and Finance Committee chair, said California now accounts for a third of U.S. foreclosures and warned that the state can’t start recovering economically “until we begin to staunch the colossal wave of foreclosures and reform the shady lending practices that resulted in this crisis.”

Lieu said the foreclosure crisis caused over $4 billion of last year’s budget gap, “and billions more will be lost for this year’s state budget as a result of the housing mess.” Pointing to Schwarzenegger’s veto of legislation to help foreclosed homeowners, Lieu added that “the governor can still help fix a dysfunctional mortgage system through new reform legislation that the legislature intends to introduce.”

mbechtel@pww.org