Report: Tough time far from over for states

NPP Pressroom

Associated Press
Paul Davenport

The report did offer a glimmer of good news: State economies are improving, and so are tax revenues. And yet, modest gains in tax revenue will not be enough to help most states' budgets in the coming fiscal year. And that means more pain for those who depend on state programs, from schools to public transportation. "It just poses these excruciatingly difficult decisions," said Corina Eckl, the organization's director of fiscal programs. The deepest economic downturn in 70 years, job losses and high home foreclosure rates have led to a sharp drop in tax revenue flowing to local and state governments, leaving agencies with spending commitments they can no longer afford. So far, budget gaps totaling $26.7 billion are anticipated for 15 states, the report said. The other 35 states do not project a gap, so far, for their current budgets, NCSL said. Last time around, states closed a cumulative $83.9 billion deficit. For many, it was their third or even fourth year of shortfalls. States have been able to make up the shortfalls with a combination of federal aid, including stimulus funds, borrowing, selling assets, raiding special funds and cuts in such services as day care subsidies and police. But opportunities to repeat those strategies are getting harder to find. That prospect has some legislators, even Republicans, discussing tax increases. "There's only so much you can cut before you get to what I call essential services that need to be provided by the state," said state Sen. Bill Raggio, a Reno, Nev., Republican whose 28-year tenure makes him the longest-serving legislator in state history. Nevada, which leads the nation in unemployment, bankruptcies and foreclosures, is projected to have a shortfall between $1.1 billion and $3 billion, depending on what level of services that lawmakers want the state to provide. They met in February in a special session to close an $800 million gap, in part, by draining reserve accounts and increasing fees, such as the cost for banks to file foreclosure paperwork with the state. In addition to Nevada, states such as Illinois have projected shortfalls of more than 30 percent of their general funds. Spending restraint has helped such states as Missouri avoid shortfalls in the current fiscal year, according to the report, based on the revenue and spending in every state and Puerto Rico. States projecting shortfalls of 20 percent or greater in the 2012 fiscal years include New Jersey (26 percent) and North Carolina (20.3 percent), while Illinois' midyear gap in its current budget tops the list at a projected 47 percent of its general fund.