WASHINGTON, Feb. 10 (UPI) — State budget deficits have grown 50 percent in the last two months with legislatures facing severe shortfalls for fiscal year 2004 as lawmakers consider dramatic cuts in local services and social service programs, according to the National Conference of State Legislatures.
“The magnitude of next year’s budget gap is startling,” said Angela Monson, president of the National Conference of State Legislatures, a lobbying group.
The NCSL said in a report examining state budget woes that 33 states face estimated budget gaps in excess of 5 percent with 18 facing shortfalls above 10 percent. Monson said it was a cause of concern because deficit numbers continue to grow at an alarming rate.
Individual states are struggling with rapidly escalating deficits of more than $90 billion that have led to cuts in social services and programs. State governors have described the situation as the most dramatic crisis lawmakers have seen in more than 20 years. The economic outlook for the states has become increasingly severe as groups such as the National Governors Association and the National Association of State Budget Officers called the situation the worst since World War II.
State legislatures have been waiting for Congress to reconvene and complete its work on the 2003 federal budget. Officials say that so-called rainy day funds set aside by states during the boom-time 1990s are dwindling. Two-thirds of the states report revenue collections falling below forecasted levels in the early months of the fiscal year.
President George W. Bush sought to address at least some of the problems states were having by funneling $3.6 billion in aid for unemployed workers. The U.S. Department of Labor reported the 6 percent unemployment rate fell slightly in January to 5.7 percent, with many of the jobless from the manufacturing and service industries. Bush said that he is seeking funding from Congress for so-called re-employment accounts that should help more than 1 million unemployed individuals.
The problem spurred Bush last month to detail his newly crafted $620 billion economic growth plan aimed at helping cash-strapped states’ rising unemployment.
The NCSL report found that 29 states have imposed across-the-board cuts. Nine states have cut elementary and secondary education programs, and 13 states have cut higher education programs. Thirteen states have also slashed Medicaid funding, often the largest portion of a state government’s spending. Eight states have laid off workers, and an additional seven states are eyeing tobacco settlement funds to offset shortfalls.
Some states are considering tax hikes to bridge the funding gaps. New Jersey, which faces a $4.2 billion budget shortfall, has considered a higher marginal income tax rate on high-income taxpayers and a hotel occupancy tax. New York Gov. George Pataki, who estimates a $9.3 billion deficit, proposed a $1.4 billion revenue package of which $363 million would be generated from tax changes such as eliminating the sales tax exemption for clothing, the group said.
Connecticut Gov. John G. Rowland has proposed early retirement for state employees, but only if unions provide other wage and benefit concessions. South Carolina has tapped its rainy day fund, and many other states have either canceled or delayed capital projects.
Senate Democratic leader Tom Daschle said last week that Bush’s $2.2 trillion federal budget proposal for 2004 would present states with their greatest challenge. Daschle said Bush’s request fails to help states struggling with rising Medicaid costs. He said the proposal cuts children’s healthcare, aid to local law enforcement, highway funding and environmental protection.
“To make matters worse, the president’s tax proposals — all told — will cause states to lose up to an additional $64 billion over the next 10 years,” Daschle said.
A separate study by the American Legislative Exchange Council found the top 10 states experiencing massive budget deficits are California, $35 billion; Texas, $12 billion; New York, $10 billion; Minnesota, $4.6 billion; Wisconsin, $2.6 billion; Michigan, $2.4 billion; Illinois, $2.25 billion; Washington, $2 billion; Connecticut, $2 billion; and Maryland, $1.8 billion.
Monson said state budget planners are concerned that the proposed federal budget for next year does not meet the cost of mandates for the No Child Left Behind Act, special education and election reform. She added that states are still waiting on an agreement on the current fiscal year budget to be finalized, particularly on issues such as welfare reform and homeland security.