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States Mend Budgets Warily

Surpluses are expected in many capitals, but after years of pain there are no plans to restore cuts in social services or roll back tax increases.

June 14, 2004|Stephanie Simon | Times Staff Writer

ST. LOUIS — After three years of financial crisis, states across the nation report a turnaround: Tax revenue is coming in strong. Crippling budget deficits have largely been erased.

With the new fiscal year two weeks away, 32 states are predicting surpluses.

So why are parents and immigrants and senior citizens so worried?

They're fearful and frustrated because in most states the emerging economic recovery has not translated into more funds for the services they depend on. To-the-bone cuts in education, healthcare, parks, road repair and other programs have not been reversed.

Corporate executives are frustrated too because the tax and fee increases passed in grimmer times have not been rolled back. "We've had to spend most of our time making sure things don't get worse," said Todd Maisch, a vice president of the Illinois Chamber of Commerce.

In some states, the austerity budgets reflect conservative principles, as politicians continue to shrink government even when revenue rebounds. In others, the cautious spending plans are a painful concession to reality: Balance sheets look much better than a year ago, but given how bad last year was, that's not saying much.

"Better is relative," said Iris Lav, deputy director of the Center on Budget and Policy Priorities, a liberal think tank in Washington. "Revenues are exceeding expectations in part due to how low the expectations were."

A few of the best- and worst-off states have significantly adjusted their 2004-05 budgets.

The Mississippi budget was so tight lawmakers eliminated some health insurance benefits for 65,000 elderly residents earning as little as $7,000 a year. Massachusetts stopped relief payments of $303 a month for impoverished immigrants.

In California, Gov. Arnold Schwarzenegger has proposed raising college fees, cutting aid to local governments and eliminating some hot meals for prison inmates, even as the state borrows $15 billion to pay operating expenses.

On the flip side, Florida banked such a healthy surplus that lawmakers cut corporate taxes and funded a new literacy program that would send reading coaches into hundreds of classrooms. Arizona will spend heavily on full-day kindergarten. Virginia will expand subsidized preschool.

But such bold moves have been relatively rare this spring. In most state capitols, lawmakers have stuck with hold-the-line budgets that give few constituents much reason to cheer.

State spending will inch up, on average, 2.8% next fiscal year, according to the National Assn. of State Budget Officers.

That equals last year's increase, and it's more robust than in the recent recession. (In 2002, state budgets expanded 1.3% and in 2003, just 0.6%.) Still, the pace of the spending increase is far below the annual average growth rate of 6.2% that citizens came to expect during more than a quarter-century of expansion stretching back to the 1970s.

Across the nation, advocates for a variety of causes are feeling the pinch.

Missouri lawyer Joel Ferber finds himself having to explain to his indigent clients that the Legislature won't resume sending subsistence checks of $70 a month to the poorest of the poor.

In Cleveland, PTA activist Mary Mason complains, "It's getting hard just to furnish our schools with pencils and paper and textbooks." Two of Mason's grandchildren and her five great-grandchildren attend public schools, and she's alarmed when she hears of plans to cut athletic programs and bus routes to save money.

"Instead of no child left behind, it's become the child gets kicked in the behind," she said.

In Georgia, Fred Watson calls his state's new budget "cruel" because it takes 2,000 nursing home patients off subsidized health insurance, leaving them no way to pay for their care. Though old and sick, they all face eviction when the fiscal year starts July 1.

"Now that the economy's better, we'd like to see state funds restored" -- not cut -- said Watson, president of the Georgia Nursing Home Assn. "This just does not make sense."

Part of the caution in statehouses can be chalked up to prudence: Burned by a staggeringly swift collapse in revenue after the 2001 terrorist attacks on New York and the Pentagon, legislators say they're wary of expanding services or cutting taxes until they feel sure the economic revival will continue.

Part of it is philosophy. In states like Missouri -- where Republicans recently won legislative majorities on the slogan "It's a spending problem, not a revenue problem" -- conservatives sense an opportunity to keep a tight lid on state programs.

"It's so easy for departments to fall back into the trap of, 'We have some money now, so let's spend it.' We have to be very vigilant about that," said Missouri state Rep. Carl Bearden, a Republican from suburban St. Louis.

Some analysts see one more factor as well in the cautious approach to fiscal 2004-05.

They contend that structural problems in state tax codes have created a perpetual crisis in capitals everywhere.

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