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States Wrestle With Recession, Fiscal Crises


NEW YORK — Last spring, after Gov. Mario M. Cuomo and the state Legislature finally approved a spending plan for the current fiscal year, they boasted that they had cut so deeply that something rare in recent state budgets would happen: No midyear revisions would be needed to make up for any unforeseen shortfalls in revenues.

What the governor and the Legislature did not count on, however, was the severity of the nationwide economic recession. With the downturn continuing to cut deeply into projected revenues, New York now needs an estimated $875 million to plug this year's budget gap and up to $3.6 billion to balance the spending plan for the fiscal year that begins in April.

"The net effect politically has been a steady cycle of bad budget news coming out of Albany," said Lee Miringoff, director of the Marist Institute for Public Opinion in Poughkeepsie, N.Y. "Stories about expected shortfalls, real shortfalls, delays in budget negotiations are seen as more or less a continuous thing right now."

Such bad budget news isn't confined to New York. Across the nation, state governments that had thought they would see some light at the end of the fiscal tunnel now are grappling once again with mounting deficits as the recession rages unabated.

As in New York, the downturn is creating a double whammy: State incomes are being decimated by steep falloffs in tax receipts while at the same time expenditures are rising for such social "safety-net" programs as welfare, unemployment insurance and health care for the poor and needy.

According to various surveys, about three in every five states are plagued by growing budget shortfalls--almost exactly the same number that were experiencing severe deficit problems this spring, just before the beginning of their new fiscal year.

"This isn't surprising, since the national forecasts all said the recession would be over at midyear," said Marcia Howard, deputy director of the National Assn. of State Budget Officers. "Revenue projections were put in based on those forecasts, and everybody was expecting improvement. But there hasn't been any improvement."

How to deal with the latest round of fiscal woes is creating monumental headaches for governors and state legislators.

In New York, Cuomo and legislative leaders are still at an impasse over how to eliminate that state's rising red ink, despite months of debate and dire predictions.

Perhaps the biggest casualty of the budgetary standoff so far, however, has been the governor's hopes of joining this year's contest for the Democratic presidential nomination.

Cuomo had linked his presidential campaign plans to his success in resolving New York's fiscal problems, but the deadline for filing for the crucial New Hampshire primary--the nation's first--arrived last Friday with the governor and the Legislature still at loggerheads.

"It's my responsibility as governor to deal with this extraordinarily severe problem," Cuomo said with obvious regret at a news conference to announce his decision not to run. ". . . I cannot turn my attention to New Hampshire while this threat hangs over the heads of the New Yorkers I have sworn to put first."

The chief source of conflict in New York's budget battle are the competing plans for reducing welfare and Medicaid costs. Medicaid expenditures for the nearly 3 million poor and elderly who rely on the health care program are running 17% above last year's levels.

The Republican-controlled state Senate has proposed a deficit-reduction plan that would slash spending for welfare and Medicaid by $1.6 billion over the next year and half, chiefly by cutting services and curtailing eligibility for program recipients.

But Cuomo and the Democratic-dominated state Assembly would prefer reducing Medicaid reimbursement rates to achieve health care savings and adding school aid to their proposed list of social program reductions.

When a compromise might be reached is anybody's guess. Last year, the governor and the Legislature went a record 65 days past the April 1 start of the new fiscal year before finally reaching agreement on the current budget.

Elsewhere in the Northeast, a controversial state income tax introduced earlier this year by Connecticut Gov. Lowell P. Weicker Jr. has survived a fractious repeal effort in the state Legislature.

The tax was intended to deal with a record $2.6-billion deficit in this year's spending plan, but less than half a year after it was imposed, along with other tax increases that created the largest tax boost in the state's history, Connecticut now finds itself facing a $175-million shortfall in its current $7.6-billion state budget.

While the gap represents slightly more than 2% of the total spending, it has a psychological impact well beyond its mere size. Many Connecticut taxpayers felt that, with the imposition of the personal income tax, the state's financial problems were resolved for well into the future, if not, indeed, forever.

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