The pain will probably spread beyond the warrens of state bureaucracy as laid-off state workers and curtailed government spending help fuel a vicious economic cycle. The Center on Budget and Policy Priorities -- which typically takes a liberal view on policy issues -- notes that as the economy declines, residents require more services from their state government, not fewer.
The only alternative to cutting services -- a tax increase -- has proven unpopular in a number of states, including California and Florida. As a result, said Florida Democratic state Rep. Ron Saunders, "we're doing what families are having to do. Most people I know don't have the same discretionary income they had last year, so they're facing difficult decisions."
Some of the most dire problems are emerging in states such as California and Florida, where the housing collapse has been the most pronounced.
California lawmakers, who faced a $15.2-billion deficit going into the fiscal year, argued over the budget for months. In the final draft, state services took a big hit: Medi-Cal was temporarily cut by 10%, and the education budget was set at $3 billion less than last year.
The bad news continues to mount. Last month, the state's revenue fell about $1 billion short of projections. Gov. Arnold Schwarzenegger and legislative leaders have been meeting weekly to discuss the problem and are considering calling lawmakers to a special session. In Florida, lawmakers faced a similar challenge as they wrote their yearly budget. The plan they devised was nearly $6 billion smaller than the year before. It resulted in 200 net job losses, tuition increases, cuts to nursing homes and the shuttering of 13 driver licensing offices.
Now the Legislature is scrambling to patch a new $795-million gap. Lawmakers may face yet another multibillion-dollar shortfall when they sit down to craft a budget for the fiscal year starting in 2009. Declining revenue is just part of the problem in Florida: Education costs are soaring because of the passage of a 2002 class-size-reduction ballot initiative, and rising enrollment and healthcare costs are bloating the Medicaid program.
Budget woes engulfed more than 40 states beginning in 2001, a result of the dot-com crash. At the time, economists said it was the biggest fiscal crisis for states since World War II.
