State governments struggle with budget crunches

| Friday, June 27, 2003

A group of state budget officers released a study June 26 showing that states have cut more from their budgets to survive this fiscal year than they have in a quarter-century.

The study also said a record number of governors want to shrink their budgets in order to survive next year.

Ray Scheppach, executive director of the National Governors Association, which released the report with the National Association of State Budget Officers, said in a statement the “news is pretty bad” – and it’s going to get a little worse.

The report found states cut $14.5 billion to cover shortfalls for the fiscal year that ends June 30, the largest correction in the 27 years the group has tracked state finances. In addition, a record high number of 19 states began next year’s budget debate proposing to shrink spending.

Scheppach said one consequence of the revenue shrinkage is that lawmakers are cutting nearly every area of state government, including education, Medicaid, state police, prisons and aid to towns and cities.

To stem fiscal bleeding and protect state programs, many states are also turning to tax and fee increases, with 29 governors proposing $17.5 billion in higher taxes or fees next year, the largest proposed increase since 1979.

The report doesn’t detail how much in new taxes and fees actually were passed or remain under consideration, as many states have finished their budget planning and legislative work, The Associated Press reported.

The new report also warned that the use of reserves, or “rainy day” funds, had left the states significantly less able to cushion any additional economic blows.

Reserve balances overall are currently at $6.4 billion, or 1.3 percent of expenditures. In 2000, at the peak of the economic boom, reserves were at $48.8 billion, or 10.4 percent of expenditures.

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