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Gubernatorial Races Hinge on Fiscal Fitness

Politics: Candidates will be judged on their approaches to closing sudden budget shortfalls caused by the recession.

January 13, 2002|RONALD BROWNSTEIN | TIMES POLITICAL WRITER

WASHINGTON — After 14 years as lieutenant governor, Republican Scott McCallum finally inherited Wisconsin's top job in February, when Gov. Tommy G. Thompson joined the Bush administration as secretary of Health and Human Services.

Along with a nicer office, McCallum inherited something else: a gaping state budget deficit that could stretch to as much as $1.3 billion. Now, even after two rounds of across-the-board spending reductions, McCallum is bracing the state for stinging new budget cuts he plans to submit this month.

Slashing popular programs isn't the way McCallum wanted to launch his campaign for a full term in November's elections. His only solace may be that he has plenty of company in his misery.

Across the nation, state officials are scrambling to close sudden budget shortfalls caused by the recession. This fiscal tumble is forcing governors to choose among unpopular options: cutting spending, deferring new initiatives and, in rare cases, raising taxes. And that promises to make the 36 gubernatorial races on tap for 2002 the most volatile in years, especially compared to the late 1990s, when governors of both parties largely waltzed to reelection.

"The budget squeeze is going to have a huge impact," says Democratic pollster Mark Mellman. "If you look at the national picture, it is going to be the determining single factor in these governors' races."

Republicans have the most to lose simply because they must defend more seats--23 governorships held by Republicans will be at stake in November, compared with 11 for the Democrats. (Two more are held by independents, in Maine and Minnesota.)

But Democrats aren't immune to the undertow: Among the governors most threatened by darkening budget situations are Democrats Jim Hodges in South Carolina, Donald Siegelman in Alabama and Gray Davis in California.

All of this is a head-spinning reversal from the last half-decade. With the booming economy swelling state revenues in the late 1990s, governors of all ideologies handed out tax cuts for state residents and spending increases for favored programs, such as education and children's health care.

The result was soaring approval ratings and reelection rates that approached those of one-party nations in the old Soviet bloc. From 1996 through 2000, just three incumbent governors were defeated, while 33 won reelection. By comparison, 12 governors were ousted in the slump years from 1990 through 1994.

Now, though, the good times are over. Revenue is running below expectations in more than 40 states, according to the National Conference of State Legislatures.

In New York, Gov. George Pataki is warning that state receipts could drop $3 billion to $6 billion in the fiscal year that begins this spring. Michigan staggered through a $1-billion shortfall in the current fiscal year and confronts a $1.4-billion deficit next year. Minnesota projects a $2-billion hole in the two-year budget that began in July. Arizona's Legislature just completed about $650 million in cuts for the current fiscal year--and still faces a $1-billion deficit in the 2003 budget it will begin debating this month.

California's situation may be the bleakest. Scrambling to close a budget shortfall estimated at $12 billion or higher, Democrat Davis could become the poster child for the deficit dilemma facing governors.

From one side, the three Republicans competing to oppose him in November are poised to attack any tax increase; from the other, key legislative Democrats are warning him not to try to balance the budget with spending cuts alone and are floating possible tax hikes on affluent families.

Davis has talked about closing the gap primarily with spending cuts and borrowing. He will not propose tax hikes himself, he said last week in his State of the State speech. But he avoided any commitment to block increases pushed by legislators.

Other governors similarly are steering clear of tax increases to address budget deficits. Instead, they are mostly relying on reserve funds, squeezing programs and diverting money states received from their legal settlement with tobacco companies, said Arturo Perez, a fiscal analyst at the National Conference of State Legislatures.

Perez warns that governors may not be able to avoid raising revenues indefinitely: "If the situation continues to worsen for states, it may be beyond their ability to cut spending and tap reserves to balance their budget."

So far, only a few governors have seen their approval ratings slide along with their state's bottom line. Among those suffering the biggest declines have been Davis, Massachusetts Republican Jane Swift and Minnesota independent Jesse Ventura--each of whom has been afflicted by political problems on other fronts.

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