“States have a cumulative deficit that is more than double the money we get,” said Pennsylvania Governor Edward Rendell. Even with the stimulus, “there’s not a state in this union that’s going to be able to wipe away all its problems.”
The U.S. economic crisis dominated talk as the National Governors Association held its annual winter meeting in Washington this weekend. The Dow Jones Industrial Average hit its lowest level since 1997 last week. Government reports showed industrial output sank in January for a sixth time in seven months and housing starts plunged 17 percent. Companies from General Motors Corp. to Alcoa Inc. are slashing jobs and cutting production as the recession threatens to become the worst slump in the postwar era.
Rendell, chairman of the governors group, said Pennsylvania cut $1 billion from its budget and raised $218 million in additional revenue with taxes on tobacco and other products. The stimulus, even with about $100 billion in infrastructure spending for states, is no cure-all, he said.
“States are not off the hook,” Rendell, a Democrat, told reporters yesterday.
The economic meltdown continues to take its toll: 43 U.S. states report the need for additional spending cuts or tax increases before their current budget years end, the Denver-based National Conference of State Legislatures reports. Thirty-four states face additional budget gaps as they prepare spending plans for the 2009-10 fiscal years.
“Almost on a daily basis, we’re hearing reports that revenues are coming in below forecasts,” said Corina Eckl, NCSL’s fiscal program director.
Adding to the problem are accelerating Medicare and Medicaid costs and infrastructure that has been neglected for decades and is forcing states to play a costly game of catch-up.
“We’ve got revenues that do not grow with inflation and we have expenses that do,” said Delaware Governor Jack Markell, a Democrat. “There’s no system in the world that can succeed with that kind of disconnect.”
Governors welcomed the $787 billion stimulus legislation signed into law Feb. 17 by President Obama as a source of much- needed, albeit temporary, financial assistance. About $100 billion of that is set aside for state road-building, bridges, and other infrastructure spending.
Five Percent More
Putting the money in context, Montana Governor Brian Schweitzer, a Democrat, said the stimulus will add about 5 percent to what his state usually gets in federal assistance.
Some governors also worry that some stimulus money, such as funds to extend unemployment benefits to part-time workers, could put states in the position of having to cut services or raise taxes when the federal aid runs out.
“Everyone, Republican and Democrat, is quite unhappy with the rising deficit,” said Vermont Governor Jim Douglas, a Republican. In the end, he said, most governors will accept most of the stimulus money.
California’s $42 billion budget shortfall for the current and coming fiscal years is about one-third of the $132 billion gap that states will have to fill as the economy slumps.
Governor Arnold Schwarzenegger, a Republican, ended a four- month impasse with lawmakers on Feb. 20 when he signed a $130 billion budget bill that included tax increases, spending cuts and borrowing. The $92.2 billion general-fund budget closed a projected $42 billion deficit.
New York Governor David Paterson, a Democrat, agreed earlier this month on spending cuts and higher fees to close a projected $1.6 billion deficit. The state forecasts a $13 billion hole for the 12 months beginning April 1.
State Senator Eric Schneiderman, a Democrat, has proposed increasing the state income tax to close the gap. Paterson wants a package of spending reductions and new taxes on gasoline, sugared soft drinks, plastic bottles and clothing. He also wants to raise college tuition. The state Assembly said the budget gap might be even larger, reaching $14.2 billion.
Neighboring New Jersey reported a deficit of $3.6 billion for the fiscal year ending June 30. Governor Jon Corzine, a Democrat, called for state employees to take unpaid furloughs. The state faces a $5 billion deficit for the 12 months beginning July 1.
Florida’s legislature met in special session last month to eliminate a $2.6 billion deficit with steps including cuts to education and health care. Arizona lawmakers closed a $1.6 billion deficit in January, cutting education spending, but still face a $3 billion gap next fiscal year.
During the recession in the early 1990s, states were quick to raise taxes rather than cut spending, Eckl said. This time, officials want to pare budgets before seeking new revenue, she said.
“We’re in a much more fiscally conservative climate,” she said.
To contact the reporters on this story: Jonathan D. Salant in Washington at email@example.com, or Lorraine Woellert in Washington at firstname.lastname@example.org. Bloomberg