States face new budget shortfalls
Economists worry that shriveling tax revenues may signal the onset of a historic fiscal crisis for state governments. Pared-down spending plans crafted just months ago may have been just the start.
The moribund economy is drying up tax revenues more dramatically than expected, forcing 22 states, including California, to confront growing budget gaps. Some states have already eliminated jobs and services -- and more cuts are likely.
The new shortfalls -- totaling at least $11.2 billion -- come just months after numerous states enacted belt-tightening measures while writing their yearly budgets. Officials also adjusted their revenue projections downward to account for the slowing economy. But in many cases, the actual revenue for the first quarter of the fiscal year, which began July 1, has proven to be even lower.
The gaps "will almost certainly widen" as tax revenues continue to disappoint, according to the Center on Budget and Policy Priorities, a Washington think tank that compiled the state data in a report this month.
Economists and other observers fear the numbers may signal the onset of a historic fiscal crisis for state governments.
"States have been confronted with bad economic circumstances in the past, but never so many states, all at once," said William T. Pound, executive director of the National Conference of State Legislatures.
The revenue pools are shrinking for a number of reasons: Rising layoffs are cutting into payroll taxes. The credit crisis and housing slump are affecting taxes levied on real estate deals. Sales taxes are shrinking as shoppers worried about the economy stay home.
Every state in the union but Vermont legally requires a balanced budget. So state governments have begun cutting.
In Utah, Gov. Jon Huntsman Jr. called the Legislature back for a special session last month to slash $270 million with an across-the-board 3% budget cut. Virginia Gov. Tim Kaine this month disclosed a sudden $900-million budget gap and announced 500 layoffs, the suspension of 2% raises for state workers and a hiring freeze. Georgia, faced with a $2-billion shortfall, is contemplating cuts of up to 10% at state agencies. Lawmakers are also discussing eliminating funding for the state's Music Hall of Fame in Macon. When legislatures convene in January, they will have to consider even harsher reductions, warned Donald J. Boyd, a senior fellow at the Rockefeller Institute of Government in New York, who tracks state budgets.
"What states have done so far -- still generally mild -- pales in comparison to what they will do," he said.
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