Report: Budget disasters loom in 10 states

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By Judy Lin ASSOCIATED PRESS

SACRAMENTO, Calif. -- A study released Wednesday warns that nine states are barreling toward an economic disaster similar to California's ongoing fiscal crisis, which has been marked by IOUs and budget-busting deficits.

The budget woes could mean higher taxes, accelerated layoffs of government employees, more crowded classrooms and fewer services in the coming year for some of the nation's most populous states.

Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin join California as those most at risk of fiscal calamity, according to the report by the Pew Center on the States.

Double-digit budget gaps, rising unemployment, high home-foreclosure rates and built-in budget constraints are the key reasons.

The analysis urged lawmakers and governors in those states to take quick action to head off a wider economic catastrophe. The 10 states account for more than one-third of America's population and economic output, according to the report.

"While California often takes the spotlight, other states are facing hardships just as daunting," said Susan Urahn, managing director of the Washington-based center. "Decisions these states make as they try to navigate the recession will play a role in how quickly the entire nation recovers."

California leads the most vulnerable states identified by Pew, which describes it as having poor money-management practices. According to the Legislative Analyst's Office, California has made nearly $60 billion in budget adjustments -- in the form of cuts to education and social service programs, temporary tax hikes, one-time gimmicks and stimulus spending -- since February as tax revenues plunged.

Many of those fixes aren't expected to last. The state's temporary tax increases will begin to expire at the end of 2010, while federal stimulus spending will begin to run out a year after that.

Gov. Arnold Schwarzenegger estimates California will likely run a deficit of between $12.4 billion and $14.4 billion when he releases his next spending plan in January. The top estimate amounts to 17 percent of the state's $84.6 billion general fund budget, the main account for day-to-day spending. General fund spending in California has dropped nearly $20 billion over the past two years.

The governor warned that the toughest cuts are ahead.

"I think that we are not out of the woods yet," Mr. Schwarzenegger said this week.