- The Washington Times - Tuesday, January 7, 2003

WASHINGTON, Jan. 7 (UPI) — Budget deficits in the nation's 50 states are approaching $90 billion and have been described as the most dramatic crisis lawmakers have seen in more than 20 years, according to an organization representing state legislators.

"These figures are staggering," said Michael Flynn, American Legislative Exchange Council's director of policy and legislation. "But what's more alarming is that few states have yet to responsibly address this self-inflicted crisis, a decade in the making, which finally hit home well over a year ago."

The ALEC released its report Tuesday that shows state budget shortfalls worsening in 2003 and 2004, with California and Texas topping the list as the states in the most trouble. The study comes as President George W. Bush delivered his newly crafted economic plan that is expected to address aid for cash-strapped states' rising unemployment.

The top 10 states experiencing massive budget deficits, according to the ALEC study, 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.

At least one state, Wyoming, is not projecting a deficit, according to ALEC.

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.

NGA Executive Director Raymond C. Scheppach said in November the crisis was a result of the convergence of four major factors: deterioration in state tax systems, an explosion of health care costs, a collapse of capital gains tax revenues, and slow economic growth.

States are facing ledgers awash in red ink as they wrestle with funding for education, welfare reform, Medicaid and crime. Groups representing state governments say education is the costliest expenditure for states, but Medicare is quickly catching up.

Individual states used different strategies during fiscal years 2002 and 2003 for increasing cash flow without implementing large tax hikes, ALEC said. Among those were cutting aid to local governments, furloughing workers, using tobacco settlement funds, implementing early retirement plans and using rainy day funds. But the ALEC said the patchwork of solutions had one thing in common: none of them addressed the long-term structural spending problems.

In a separate ALEC report, "Show Me the Money: Budget Cutting Strategies for Cash-Strapped States," the group recommends states adopt a slate of cost- reduction measures. The group suggests states slash workforce costs by freezing state hiring, reducing the number of government positions and renegotiating labor contracts.

Chris Atkins, director of the ALEC's Tax and Fiscal Policy Task Force, told United Press International that several states are either using the group's recommendations or implementing similar initiatives. Among them are Virginia and Kansas, he said.

The group recommended states reform entitlement programs such as Medicaid, a federal-state health insurance program that serves some 36 million low-income individuals. Medicaid is taking a larger portion of state budgets with an increase in the number of people who need services as the economy sinks deeper into trouble. The federal program accounts for about 15 percent of the average state's general fund budget, groups say. Spending for the program grew 13.2 percent in 2002, the fastest rate of growth since 1992, according to the NGA.

The president has said he supports revamping Medicaid with the Pharmacy Plus Program that would allow states to use their Medicaid programs that serve the indigent, to provide drug-only coverage for low-income seniors. The federal government would pay 90 percent of the costs of the plan and states would be responsible for the remaining 10 percent.

The reports also suggested lawmakers tie funding for higher education institutions to performance, an echo of Bush's policy that the federal government programs show results in order to receive additional monies. Bush turned that policy into a law affecting the nation's public school system in a sweeping overhaul of elementary and secondary school education.

Congress has yet to fully fund Bush's education reform plan, No Child Left Behind Act of 2001. The new law requires individual schools to enhance teacher quality and their students to meet minimum overall proficiency standards within three years.

State legislatures have been waiting for Congress to reconvene and complete its work on the 2003 federal budget. NCSL officials said 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.

Bush on Tuesday 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 reports the unemployment rate rose to 6 percent in November, with many of the jobless from the manufacturing and service industries. Bush said that he is seeking the funding from Congress for so-called re-employment accounts that should help more than one million unemployed individuals.

"This hardship is concentrated in certain regions and in certain industries. Manufacturing jobs have declined for 28 months in a row," said Bush during his speech. "You know what I'm talking about here in the Midwest. You're showing signs of recovery here, yet many people here and across this country are still looking for work."

The re-employment accounts would pay workers up to $3,000 for job training, daycare, or transportation costs. If they find a job within 13 weeks, they are allowed to keep the balance of the unspent money in the account.

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