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Budget: States look for new 'sacrifices'

By David M. Dickson (Contact) | Monday, June 30, 2008

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After a four-year spending splurge, many state governments are facing big budget gaps because of plunging home prices, declining manufacturing output and rising unemployment.

A report by the National Governors Association (NGA) says the pressure to cap spending probably will intensify in the years ahead. These deteriorating economic trends could contribute to huge budget shortfalls in fiscal 2009, requiring states to all but freeze spending growth, according to the association's report.

States are pursuing many strategies to cope with the impending shortfalls. In 2009, tuition at state universities in Virginia, California and Alabama will increase by about 10 percent. Florida and California will be reducing state aid to school districts.

To achieve long-term savings, Tennessee "used one-time money from a reserve fund to finance voluntary buyouts for 2,000 state employees," said Lola Potter of the Department of Finance and Administration.

"Ohio has been challenged by the downturn in the national economy," said Keith Dailey, press secretary for Gov. Ted Strickland, a Democrat. The $733 million in cuts that the governor instructed state agencies to implement required "real sacrifices, including job reductions and the closing of two mental health facilities," Mr. Dailey said.

Ohio has kept its $1.1 billion rainy-day fund in reserve in case the slowdown turns into a recession, he said.

Budget-reduction measures under consideration include early-release programs for nonviolent state prisoners in California, Kentucky and Mississippi.

Rhode Island has addressed a nearly $450 million shortfall by reducing personnel costs, cutting payments to cities and towns and ending an energy-assistance program for the poor. "The state will spend less in 2009 than was enacted in 2008," said Jeff Neal, press secretary for Gov. Donald L. Carcieri, a Republican. "It's the first time in recent history that's happened."

To make major dents in California's projected deficit of more than $20 billion, Gov. Arnold Schwarzenegger, a Republican, has proposed borrowing $15 billion against future profits from an expanded state lottery and deeply cutting the state's Medi-Cal health insurance program for the poor.

Altogether, 18 states reported that they intended to spend less in 2009 than in 2008. Still, the situation is "not as bad for states as it was post-9/11," Mr. Pattison said, but he is "very concerned about the future."