In statehouses from Boston to Sacramento, the only commodity more scarce than money this summer is optimism.
After a grueling spring slashing programs and raising taxes to balance budgets for the fiscal year that began July 1, many states are expecting more of the same in the months--perhaps years--to come. Even if the economy recovers more rapidly than now appears likely, experts say, states still face a lasting structural imbalance between demands and resources.
"It's not a good picture," says Raymond C. Scheppach, executive director of the National Governors' Assn. "We're looking at a difficult transition for at least the next two to three years--and maybe the whole decade."
It was already difficult enough for most governors this year. With the recession flattening revenues, three-fifths of the states faced deficits in their 1991 budgets and virtually as many prepared lean budgets for 1992. Michigan cut grants to welfare recipients by 9%. Massachusetts reduced state aid to local governments by one-eighth. Georgia placed state workers on one day of unpaid furlough every month. New York hiked tuition at state universities by 30%. California, Vermont and Minnesota raised income taxes on the top earners.
So painful were the choices facing state governments that nine missed their June 30 deadlines for a new budget, and two--Maine and Connecticut--were forced to shut down all but a few essential services. Connecticut and Pennsylvania still do not have budgets, though Maine and California resolved protracted deadlocks this week, and Illinois closed in on a budget agreement Wednesday. Negotiations also continue in Texas, Michigan and Alabama--states whose budgets are not legally due until later this year.
But even in states that have already produced blueprints for 1992, the battles may be just beginning. Sagging revenues forced many states to reopen their budgets for additional cuts totaling about $10 billion through the fiscal year that just ended. If the economic recovery stumbles, that painful pattern could be repeated.
"If revenues don't pick up in the next month or two," says Marcia A. Howard, deputy director of the National Assn. of State Budget Officers, "they will be right back in there."
The chasms of debt that opened under states around the country this year put a jarring end to a buoyant ride through the 1980s. Over the past decade, state spending grew 104%, according to Census Bureau figures.
Critics such as Stephen Moore, director of fiscal studies at the libertarian Cato Institute in Washington, say that states went on a profligate "spending spree" during the 1980s, adding new programs they could not afford. Defenders maintain that federal cutbacks for domestic programs forced states to step into the breach. "Most states absorbed the federal cutbacks and paid for it with the boom years of the 1980s," says Mitchell L. Moss, director of the Urban Research Center at New York University.
Both sides in this debate agree on one thing: In the 1990s, states are unlikely to continue their heady growth. In the coming fiscal year, for example, Howard estimates that state spending will rise only about 4.5%--less than inflation, and only slightly more than half its rate in the 1980s.
In this austere environment, continued conflict is likely on several fronts. Among them:
EDUCATION: During the past decade, governors of all ideological persuasions raised education spending enough to double inflation-adjusted per pupil spending.
Even the most fiscally conservative chief executives tried to defend those gains against budget cuts this year. But experts say continued austerity will make it much tougher to fund comparable increases in the coming years. "We tried throwing money at education and it didn't produce very good results," says Steven D. Gold, director of the Center for the Study of the States in Albany N.Y. "Education is going to have a lot more competition for dollars."
SOCIAL WELFARE: Only Michigan, California and the District of Columbia actually reduced welfare grants this year. But several states--led by Ohio, Michigan and Massachusetts--sharply cut general assistance programs that provide aid to people not eligible for welfare. And virtually all states did not increase welfare benefits to keep pace with inflation.
That has been the pattern: From 1972 through 1990, the purchasing power of a welfare grant for a family of four declined by 36%. When the cuts imposed this year are factored in, the value of the average welfare grant will be less than it was in 1960, according to calculations by Robert Greenstein, director of the Center on Budget and Policy Priorities in Washington.
HEALTH CARE: Exploding expenditures on Medicaid, the jointly financed state-federal health care program for the poor, are "the single most difficult problem for most states," says Paul W. Timmreck, Virginia's secretary of finance.